Prudential Regulators Update on Rightsizing Regulation for American Opportunity

Good morning. I wanna thank Vice Chairman Bowman, Chair Hill, Comptroller Gold, and Chairman Hobson for being here today. I wanna begin by applauding the progress made on the banking and reputation risk. This committee advanced a firm act because banking decisions should be based on financial risk. not politics. President Trump reinforced that principle through his executive order on debanking. No law, no lawful business in Anderson, South Carolina or anywhere in America should be denied access to banking services because of shifting political winds or subjective considerations, like reputation risk.

Yeah. Yeah.

I appreciate your efforts to refocus bank regulation on core financial risks, to keep our financial system safe, but also make sure that families and small businesses can still have access to credit. Over the past several years, rules that did not make our banking system safer have been piling up. They did not make Americans safer. This over-regulation did have one effect. It made it harder for banks and credit unions to serve their customers. And when those institutions struggle, families struggle. Small businesses struggle. And first-time homebuyers struggle. Strong safeguards in economic growth are not opposites. In fact, when our economy is growing and Americans are working, saving, and investing, our financial system becomes stronger, not weaker. That is why getting the balance right actually matters a lot. One important step is making sure capital rules reflect real world risk without unnecessarily holding back lending. I appreciate your agency's work to rethink Biden-era proposals like Basel-three Endgame that would have significantly increased capital requirements, to the detriment of our economy. We must ensure that rules designed in Washington do not make it harder for small businesses in Spartanburg South Carolina or across the country to grow. Vice Chairman Bowen, I was encouraged by your comments last week about helping banks return to mortgage lending. Thank God. That aligns with our work, our work, on the Road to Housing Act, which is focused on reducing red tape and increasing housing supply so more Americans can achieve the American dream of home ownership. We also need rules that keep up with the times. When the regulatory thresholds are frozen in place for years, they do not reflect the size of today's economy. As our economy grows, our regulatory framework should be modernized with it in a way that maintains safety while encouraging opportunity. I appreciate that the banking regulators have a renewed focus on tailoring to ensure their policies are designed to fit the unique nature of each institution. I sent a letter to the banking agencies yesterday in support of updating the potential bank regulatory tailoring categories based on nominal GDP. I look forward to seeing a proposal sometime soon. I also wanna commend the agencies for recent efforts to focus supervision on material financial risks and enhance the independence and efficiency of the appeals process. This enables financial institutions to serve their customers effectively while maintaining safety and soundness. Having a robust process for appealing supervisory determinations is necessary to provide regulated institutions with due process and transparency. Finally, I look forward to your agency's continued progress implementing the Genius Act. Bringing digital assets and stable coins into clear, regular, regulated fire frameworks strengthens consumer protection and ensures innovation here at home in the United States, and not overseas. At the end of the day, the decisions made by this committee and by our banking regulators have real consequences. They affect whether a family can qualify for a mortgage, whether a small business can expand, whether communities in Bamberg County, South Carolina, and across the country have access to the capital they need to grow. Our responsibility is to ensure we have a banking system that is safe, resilient, and focused on real financial risk, while still supporting economic opportunity. That is the balance we are working to achieve. I look forward to today's hearing. Reagan member.

Uh, thank you, Mister Chairman. So, President Trump has had more than a year to keep his number one campaign promise to lower costs for American families, and boy, has he failed. Costs are going up across the board. Prices are up for groceries, utilities, health care. And the National Association of Home Builders says that thanks to Trump's chaotic tariffs, It costs eleven thousand dollars more to build every new house in America. Meanwhile, job growth has slowed to a crawl and eighty-three thousand people working in manufacturing lost their jobs last year. Ordinary Americans are squeezed hard, but boy, it is a good time to be a Wall Street CEO. Last year, the CEOs of the six largest banks together earned more than a quarter of a billion dollars in compensation. Those banks paid out more than a hundred and forty billion dollars in dividends and buybacks to wealthy shareholders. It is a record. The rich are getting richer and everyone else struggles. In the Trump economy, it's Wall Street first and American families last. Now, we've seen this story before. We know how it ends. In the great financial crash of two thousand eight, ten million families lost their homes, the unemployment rate skyrocketed to ten percent, and nearly twenty trillion dollars in savings and retirement plans evaporated. Washington helped cause that crash by eliminating common s- uh common sense guardrails that kept banks safe and focused on serving communities. When the crash hit, Washington bent over backwards. to funnel trillions of dollars to bail out Wall Street. Wall Street executives who deserved handcuffs were instead rewarded with golden parachutes. It was brutal capitalism for families on Main Street, socialism for billionaires on Wall Street. The memories of a family being thrown out of its home because of a predatory mortgage, or of a seventy-year-old grandmother coming out of retirement to work at Walmart, because her pension vanished, did not fade. But Wall Street lobbyists and piles of campaign cash have worked hard to erase them. Now they have their champion in the White House and he has assembled a team of Wall Street first regulators. Take the Federal Reserve Vice Chair for Supervision, Michelle Bowman. President Trump appointed her to the Fed during his first term. She helped deregulate Silicon Valley Bank, other large banks. And a few years later, those same banks failed, the second, third and fourth largest bank failures in US history. And was Ms. Bowman held accountable? Nope. President Trump gave her a promotion. Now she and Trump's other regulators are implementing Wall Street's wish list. And at the top of the list, weakening capital rules, including stress testing. Banks love debt. They wanna make their bets using other people's money, so depositors and taxpayers are left holding the bag if things blow up. Capital rules require banks to fund loans and investments with some of their own money, so that they have skin in the game in those decisions. Strong capital cushions help the economy by reducing the likelihood of financial crashes and taxpayer bailouts. Now, mega-banks are drawing down their capital cushions through higher payouts to wealthy executives and shareholders increasing their risks. Regulators have also rubber-stamped mergers, allowed banks to engage in dangerous crypto activities, rescinded a key rule designed to drive investment in low-income communities, eviscerated fair lending standards, and taken financial cops off the beat, each cutting staff by fifteen to thirty percent. The bank regulators have also terminated enforcement actions against JP Morgan, Wells Fargo, Citigroup and Goldman Sachs, while failing to identify new law breaking on Wall Street. Either Wall Street bankers have suddenly stopped breaking the law, or Trump enforcers are keeping their eyes deliberately closed, embedding on closed eyes. Warning lights in our overall economy are flashing red. President Trump is bringing the next great financial crisis closer into view, yet his regulators seem determined to serve only Donald Trump and his billionaire buddies. Thank you, Mister Chairman.

Thanks, Senator Warren. Today we'll hear from Vice Chairwoman Bowman, Chairman. Hill, Comptroller Gould, and Chairman Hauptman. For a semi-semi-annual update from the Prudential Regulators, Vice Chairman, you are now recognized.

Thank you, Chairman Scott. Ranking member Bo- uh Warren and members of the committee, thank you for the opportunity to testify on the Federal Reserve's supervisory and regulatory athor- activities. I'll focus on the current state of the banking sector and progress on my priorities as the Vice Chair for Supervision. The banking system remains sound and resilient. Banks continue to report strong capital ratios and significant liquidity buffers, which position them well to support economic growth. We are seeing continued growth in bank lending, a decline in non-performing loans across many categories, and strong profitability. Non-bank financial institutions continue to increase their share of the total lending market, creating strong competition for regulated banks, without facing the same prudential standards. To compete effectively with non-banks on both payments and lending, the Federal Reserve is encouraging banks to innovate to improve their products and services. We're working with the banking uh regulators to develop regulations that include capital and liquidity for stable coin issuers as required by the Genius Act. We also need to provide clarity on digital assets to ensure the banking system is well-placed to support these activities. The Fed is working to tailor our regulatory and supervisory framework to accurately reflect the risk that different banks pose to the financial system, particularly for community banks. We cannot continue to push policies and supervisory expectations designed for the largest banks down to smaller less risky and less complex banks. I support Congress's efforts to reduce burden on community banks, including increasing static and outdated statutory thresholds that have not been updated for years. The Fed is taking actions to support community banks. Together with the FDIC and OCC, we've recently proposed changes to the community bank leverage ratio, to provide greater flexibility while preserving strong capital and safety and soundness. And we released new capital options for mutual banks. We are exploring streamlining the merger and acquisition and de novo chartering application processes for smaller banks, and updating the board's merger analysis. to accurately reflect and analyze competition. We are also modernizing and simplifying the Fed's regulation of large banks. The board released its proposal last October to enhance public accountability and ensure robust outcomes of our stress test. The proposal includes disclosing stress test models, the design framework, and the twenty twenty-six scenarios. It ensures that future significant changes will benefit from public input prior to implementation. The agency's also finalized changes to the enhanced SLR proposal for US GSIPS, which helps ensure that leverage ratio requirements serve as a backstop to risk-based capital requirements as originally intended. The board is working on a proposal with the OCC and the FDIC to implement the twenty seventeen Basel agreement. This will reduce uncertainty and provide clarity on capital requirements. we are considering each of the elements, rather than reverse engineering changes to achieve predetermined outcomes. As a part of this proposal, we are considering approaches to differentiate mortgage risks that will benefit the entire banking system. The Fed is also working to refine the GSIB surcharge framework, and in coordination with broader capital framework reform efforts. The surcharge must be calibrated to avoid impairing the banking sector's ability to support the broader economy. Effective supervision must focus on factors that affect a bank's financial condition, including material risks to bank operations and to the stability of the broader financial system, not material issues that distract from core safety and soundness. This requires a risk-focused, tailored approach. Let me be clear. Those core material risks include non-financial risks where they pose threats to safety and soundness. Strong risk management, whether in credit, liquidity, cyber security, or operations, remains essential. And we will continue to examine for those risks. Focusing our resources on material issues that historically have co- correlated to bank failures, will create a more effective oversight system. The CAMELS framework is also under review, as is Ban- the Bank Examiner training program. Establishing clear metrics for CAMELS components ensures transparency and objectivity in our examinations and enhancing examiner training will improve our supervision. The board launched an independent third-party review of the twenty twenty-three bank failures. This review will objectively examine why our supervision fell short and deliver accountable findings to further strengthen our supervisory practices. We have also ended the practice of using reputational risk in our supervisory programs. And we have proposed a regulation to prevent supervisory influence from leading banks to debank a customer due to their constitutionally protected political or religious beliefs, or a business engaged in legal but disfavored activities. Banks must be free to m- make their own risk-based decisions to serve individuals in lawful businesses without interference. Thank you again for the opportunity to appear before you today, and I look forward to your questions.

Thank you. Chairman Hill?

Chairman Scott, Ranking Member Warren, and members of the committee, thank you for the opportunity to testify today. I appreciate the opportunity to report on the FDIC's work to improve our regulatory and supervisory approach across a number of areas, while continuing to fulfill our core mission of insuring deposits, promoting the safety and soundness of banks, and resolving failed institutions. Over the past year, the FDIC has made significant progress in several areas, including reforming supervision so it is less process driven and more focused on core financial risks engaging in a thoughtful review of our regulations, guidance, and manuals, reevaluating numerous aspects of our resolution and receivership management functions and promoting the prudent adoption of innovative technologies in the financial services sector my written my written statement provides greater detail on each of these areas but I would like to briefly touch on each of them. Regarding supervision, the FDIC is actively implementing changes to our supervisory process to reorient our focus more toward financial risks and to improve other aspects of our supervisory frameworks framework. Among other things, we are reviewing comments received in response to our proposed rule issued with the OCC that would define certain key terms related to supervisory criticisms, initiated a process to review outstanding supervisory criticisms to close out those that do not align with the new approach to supervision, our working with federal and state regulators on reforms to the camel's rating system, and issued guidelines to establish an independent office of supervisory appeals to adjudicate appeals of material supervisory determinations, which we are currently in the process of standing up. The FDIC has also been engaging in a thoughtful review of our regulations, guidance, and manuals, and we have been making a number of improvements. With respect to capital rules, We finalized a rule to modify the enhanced supplementary leverage ratio to help ensure that it serves as a backstop to risk-based capital requirements rather than as a frequently binding constraint. Our reviewing comments in response to our proposal to amend the cum- community bank leverage ratio to expand eligibility and encourage more community banks to opt in and our working with the Federal Reserve and OCC to modernize risk-based capital requirements which includes implementation of the twenty seventeen Basel agreement and which we expect to issue in the coming weeks. We have also finalized a rule to raise and index thirty-seven regulatory asset thresholds and we continue to evaluate other thresholds within our regulations to be included in one or more future proposals. We rescinded our twenty twenty-four statement of policy on bank mergers and continue to work on additional improvements to the merger review process and analytical framework and we issued a final rule to significantly enhance the speed and clarity of the approval process for new branch openings. With respect to bran- bank resolution, among other things, we have modified our approach to resolution planning for large insured depository institutions based on lessons learned from the twenty-twenty-three bank failures and expect to propose future changes expect to propose further changes as part of a future NPR. We have also conducted dozens of outreach meetings with banks in their capacity as potential failed bank acquirers as we seek to improve the bidding process and remove potential obstacles to lower cost bids. And we have implemented a number of internal operational improvements, including updating templates for contractual agreements, which were released publicly and on which we invited public feedback. The FDSE has also taken a more open-minded approach with respect to banks that offer products and services related to digital assets, while maintaining our expectation that such activities are conducted in a safe and sound manner. Specifically, we rescinded the Biden-era prior notification requirement for digital asset activities which served as a significant barrier to banks' participation in these activities withdrew from several inter-agency joint statements, including one that suggested that use of public distributed ledger systems was likely inconsistent with safe and sound banking practices and are actively working to implement the requirements of the Genius Act. We issued an in initial proposal to establish an application process for stablecoin issuers in December and expect to issue a more comprehensive proposal to implement other aspects of the law in the coming weeks. Finally, improving workforce culture at the FDIC continues to be a top priority. We have implemented a number of reforms to ensure that those who engage in misconduct are held accountable and will continue to work to ensure that the FDIC is a place where employees are proud to work. In closing, the FDIC will continue to work to drive economic growth and access to capital, while fulfilling our critical role in promoting a safe, sound, and resilient banking system. Thank you for the opportunity to testify today, and I look forward to your questions.

Thank you. Chairman Gould.

Chairman Scott, Ranking Member Warren,

I'm I'm

and members of the committee, thank you for the opportunity to appear before you. It is an honor to discuss the OCC'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. Over one hundred and sixty years ago, President Lincoln had a vision for a federal banking system to serve this country and its economic ideals. And he empowered the OCC to oversee that system. Today, the OCC supervises more than one thousand institutions that hold seventeen point nine trillion in assets, two thirds of all US commercial banking assets, and have more than ninety trillion in assets under administration. In the year since 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. Unelected bureaucrats discouraged prudent risk-taking, stifled innovation, and drove credit out of reach for small businesses and communities. The Dodd-Frank Act, far from ending too big to fail, created a moat around the very largest banks and introduced too small to succeed. Community banks with less than one billion dollars in total assets have since seen their numbers cut in half. They will benefit, perhaps the most, from a tailored framework that reflects a more rational risk tolerance. No American should be denied access to banking products and services because of political or religious beliefs or lawful business activity. We are implementing President Trump's executive order on guaranteeing fair banking for all Americans, by among other things, reviewing the activities of the largest national banks and investigating complaints of alleged Debanking. We have also proposed a rule to eliminate reputation risk from supervision, a tool too often used to debank politically disfavored individuals or groups. We are intent on ensuring banks provide access to banking products and services based on an individualized objective risk-based criteria, not politics or ideology. The OCC's support functions have degraded in recent years, posing a risk to our ability to execute our statutory mission. Outward signs of this decline include the hiring of a fraudulent Chief Financial Technology Officer in two thousand twenty-two, and an email data breach that took nearly two years to identify and halt. These issues were the tip of the iceberg, and fixing agency operations is the top priority for me. To that end, we are working to ensure accountability for these failures and to recruit qualified and competent individuals. The OCC is strengthening its supervision by returning to a risk-based approach rooted in law, with an emphasis on examiner judgment, not arbitrary checklists. Examiners will focus on issues that materially affect banks' safety and soundness. We are also codifying reforms to the matters requiring attention process, clarifying enforcement standards, and ensuring supervisory tools are used proportionately and predictably. The OCC is working with our inter-agency partners to re-propose the Basel-three capital rulemaking, and evaluating opportunities to improve the Community Reinvestment Act framework. These efforts share a common principle. Regulation should safeguard the system, not smother it. We are also advancing BSA AML modernization and targeted burden relief for community institutions. Taken together, these actions will make our regulatory architecture simpler, stronger, and more accountable. Innovation has driven American finance from the telegraph to the blockchain. The genius act in this is this Congress's effort to advance American innovation through payment stablecoins, and we look forward to comments on our proposal to implement it. We also welcome applicants for bank charters. Their renewed interest is a return to the norm and a sign of a healthy banking system. We will continue to evaluate applications on a case-by-case basis and in an even-handed fashion consistent with the statutory factors and our high supervisory standards. We will also work with OCC's supervised banks to clarify new ways for banks to conduct the very old business of banking, and embrace new technologies like AI, ensuring these opportunities are available to all banks that wish to take advantage of them, rather than a privileged few. And we will draw inspiration from their examples as we modernize our own operations and activities through similar innovations. The federal banking system must remain dynamic, competitive, and fair. By providing a path for banks to embrace new technologies in a safe and sound manner, ending politicized debanking, and modernizing supervision, we are ensuring the long-term relevance of the federal banking system. And we are restoring the OCC's historic balancing of prudence and progress. This is what Lincoln envisioned, a federal banking system that serves all Americans, drives our thriving economic union, and stands ready to meet modern challenges. Thank you.

Thank you. Chairman Hoffman.

Chairman Scott, thank you, member Warren, members of the committee. Thank you for the invitation to discuss the National Credit Union Administration. Last January, I was honored to be selected by the president to serve as the thirteenth chair of NCUA. I'd also like to thank SEC Chairman Atkins for my recent appointment to the Public Company Accounting Oversight Board. I intend to continue to serve as the NCUA chair until my successor at NCUA is confirmed by the Senate. NCUA is here to enable access to financial services by facilitating safe, sound, and resilient credit unions. The forty-three hundred credit unions in America have about two trillion in assets and serve more than half of adults in America. Federal credit unions serve Americans in all fifty states. Forty-five states have state charters. Overall, the system is safe and sound, healthy levels of capital, and moderate growth. At NCUA, one of our priorities is making sure that our own activities are fair and transparent. I'm pleased to say that this past October, the NCUA codified our policy of no regulation by enforcement. Now to be clear, NCUA had a good track record regarding regulation by enforcement, so this uh shouldn't be viewed as a response to any particular NCUA actions. After all, it is counter-productive for a deposit insurer to engage in regulation by enforcement against the same people that we insure. This new policy states that enforcement action should never set policy, that enforcements don't take the place of rulemaking or guidance, that fines and press releases aren't how the public is supposed to find out what is or what isn't a violation. Thus, NCUA's new policy is just basic American fairness, and it's how most people think our government should operate. For example, every senator on this committee expects that in America or any free society, the sequence of events is supposed to be first set speed limits, then give out speeding tickets. But with financial regulation, that has not always been the case. We've all witnessed regulators behave in ways clearly designed to boost their annual enforcement totals. I have personally witnessed Americans ask agencies what the rules are, and the regulator responds, " You'll have to see what enforcements we take." That, to put it mildly, should never happen. So I'm proud that we at Little NC UA are doing our part via our publicly available policy statement one that is purposely difficult to reverse in the future. Beyond that, we're right-sizing our agency to focus on safety and soundness in a few different ways. we're capitalizing on opportunities created by the this administration to foster innovation. As a first priority, this past December, NCUA launched the de-regulation project, a long-term initiative aimed at meticulously reviewing and revising regulations to remove any that are obsolete duplicative, intended actually as guidance, or just unduly burdensome. It's a spring cleaning of sorts. It's it's something that's necessary at any monopoly government agency. where the pile of regulations and paperwork grows ever higher with little regard for cost. One thing I've learned in this line of work is that the only people who think compliance is easy are those that don't have to do it. NCUA currently has twenty-one notices for proposed rulemaking available for comment. Four more are closed. Regarding the Genius Act, our proposed rule on the application process for stable coin issuers is already public, and the next rule on issuer standards is in process. Petunians should be well poised to benefit from this long overdue update to America's outdated payment ecosystem. Beyond the consumer benefits, stablecoins are a golden opportunity to stimulate demand for US Treasuries, to keep borrowing costs manageable, and to retain the US dollar's status as the global reserve currency. We as Americans may have gotten so used to the dollar's global dominance that we don't all notice what an advantage we have. But just ask the British what it's like when it's gone. The Genius Act and dollar denominated stable coins are a way of striking back against those in Beijing or Moscow who continually push for the US dollar to be less important, less ubiquitous, and less useful. So I'm pleased to be working with my colleagues here at this table to do our peer, our part of that important effort. My written testimony discusses the current state accrediting system and provides an overview of the state of the agency. including on restructuring. It also details the work we're doing to empower credit unions and foster innovation. Thank you, Chairman Scott. I look forward to your questions.

Thank you very much. We'll start our questions this morning with Senator Kennedy.

Thank you, Mister Chairman, for that uh courtesy. Uh, Madam Vice Chair. Credit should be given when it is due. I I remember uh well three or four years ago Chairman Powell and others were giving a report on the economy. Inflation was nine percent. Was gutting the American people like a fish. Um. Stevey Wonder could have seen it coming. President Biden asked and Congress consented, I didn't, that we start spending money like it had the value of Louisiana ditch water. Had uh President Biden, have we discovered life on Mars when President Biden was president? He would have sent it money, medium. And and I remember the Federal Reserve represented by Chairman Powell sitting here, and we're talking about what to do about it, and he explained his plans and and and so many words I said, not gonna work. I've read the white papers. Um. you can get inflation down, but we're gonna have to have uh, we're gonna have to suffer unemployment of seven, eight, nine percent. It didn't happen, did it? We have a soft landing. And uh the the the the the the federal reserve was in part res uh responsible in the best sense of the word for that. Um. And we don't applaud that enough. Now we can debate whether the chairman and the vice-chairman and others should l- raise or lower interest rates and and and what we should do about quantitative easing and how many, how how many economists can dance on the head of the pen. But it's a fact. We had a soft landing. Thank God for it. Now inflation is not down where we want. But two point seven percent's a hell of a lot better than nine percent, without having to suffer seven, eight, nine, ten, ten percent unemployment and the human misery that goes with it. So the Fed did something right. On the other hand, what in God's name was the Fed and some of y- your other agency's thinking when you allowed banks to debank customers for reputational risk. Are you kidding me? Why did you allow that to happen? Because you didn't like their politics. Or you didn't like the products they made. i mean do you think it would be fair uh uh uh senator warren's not here so i hesitate talk about senator warren was a distinguished professor at harvard university some people don't like harvard some people don't like their politics how could you possibly allow a bank to have the option, I'm not say saying they did it, but to debank someone like Senator Warren, I'm using her as a hypothetical example, because you didn't like her politics. And you can say the same thing about gun manufacturers and oil and gas and anybody you don't like, and you let the banks do it. What in God's name were y'all thinking, Madam Vice Chair?

Well, Senator, I appreciate your concerns and I share them. I I was not the Vice Chair at the time the decisions were made.

I know that. But your institution went along with it, the banks proposed it, and your institution sucked it up like a Hoover deluxe.

In my view, debanking is never an appropriate activity, it is uh every American in this country should have access to financial services. And they should not be uh limited from access to those services based on their political, religious beliefs or their engagement in a particular business that may be disfavored but is legally legally uh uh liable.

Let me tell you folks, this isn't over yet. Thank you, Mr. Chair.

Senator Blunt, Rochester.

Thank you, Chairman Scott and Ranking Member Warren and to the witnesses as well. Uh, Chair Hauptman, I'm going to uh start with you before I turn it over to um to Vice Chair Bowman. Um, I have a bipartisan bill with Senator Hagerty, uh, the Credit Union Board Modernization Act. Uh, it simply updates board meeting requirements for well-rated established credit unions. And it currently has fifty-eight cosponsors in the Senate and passed the House last year by voice vote. Do you think this is a good idea?

But we're gonna buy a lot of the Congress sets, I'll take a listen.

I, your mike, I think the microphone is.

Oh, yeah.

Yeah.

We're gonna, obviously Congress said that years ago, that every thirty days they have to have a formal board meeting. And it's somewhat unique. Now at NCUA, listen, we're gonna do whatever Congress says. They do find it odd that Congress has NCUA enforce a rule that they ha- formal meeting every thirty days to say that the this entity cannot function unless they have a formal meeting every thirty days, and they have, Congress tells NCUA to enforce that. You know who else doesn't have a formal meeting every thirty days? Congress and or NCUA.

Mm.

So they find it a little odd. They, you know, they say, oh, we have to meet every thirty days? Congress told us that? When did they say that? Was it during their eight week recess? Is that when they told us?

Mm.

So, uh, they find it a little odd for well meeting ones and it's not something subject to others but again we're gonna do what Congress says.

I know this is one of our our credit union's top priorities and so Since they do a lot for our communities as well as our small businesses, uh I'm glad to see it has a lot of bipartisan support and we hope to see it pass here in the Senate as well. Uh, Vice Chair Bowman, I want to turn to the Federal Reserve's exploration of the so-called skinny payment accounts uh I support payment innovation um but access to the Federal Reserve's core infrastructure is not a small privilege. So I want to understand the risks before expanding access. Uh, the Fed's payment systems also refer to as payment rails, including Fed ACH, Fedwire, and FedNow, move trillions of dollars and underpin payroll and business transactions nationwide. Do you agree that if a bad actor were granted direct access to those systems, that could increase risks related to fraud, illicit finance, or operational disruption?

I think that's an accurate statement, yes.

And since those systems operate at scale and speed, problems uh can spread quickly when something goes wrong, correct?

Yes.

Today most non-bank payment firms access those rails through regulated banks which create checkpoints uh including any money laundering controls and supervisory oversight. If a non-bank were granted direct access, that checkpoint would be removed. Would you agree that increases the importance of the firm's own risk controls?

Yes, it's very important that any any firm that has access to the payment system has those controls in place.

And traditionally, direct access through what's called master account, a master account has been limited to insured, prudentially supervised banks. The Fed has discussed limited or so-called skinny accounts that would provide access. without full master account privileges. We know that. So it's direct access increases the speed and scale of harm when something goes wrong. Why would it make sense to grant that access under lighter guardrails than those imposed by on banks?

Senator, we have a very thorough structure in place that allows us to consider applications for access to master accounts. This particular access that you're speaking about, the skinny master account, is um is contained within an RFI that we have recently issued um sent uh Governor Waller is responsible for for this area within the Federal Reserve Board. We've issued an a request for information with uh a proposal that would allow for feedback that we would take very seriously as we're considering uh whether or not to create this account or how to how to access it or give access to it.

I if the Fed were to grant this access and later determine that affirm posed risks, does the fed have clear authority to immediately suspend or terminate that access?

We would need to ensure that we do have that access, and yes, I believe that we do.

So you believe we do, but we just need to clarify that you do actually have the authority.

I think it would be helpful if it's not already clear. And I I I don't don't wanna speak out of turn. I we would need to look into that and understand exactly what that would be.

I know in the four seconds three that I have left i just wanna say two one um i just wanna say how serious this is and how uh we look forward to following up with you to make sure that that authority exists and i yield back

thank you ma'am

i sure your concerns

send rounds

thank you mister chairman uh first thanks to all of you for appearing before us today um vice chair bauman each of your respective agencies has taken steps to remove reputational risk as a component of federal supervision and examination to prevent law abiding businesses from being debanked for purposes other than financial standing. Um, my question for you is uh, as current chair of the Federal Financial Institutions Examination Council, how do you make certain that front-line examiners are carrying out the regulatory policies and guidance established in Washington when evaluating financial institutions on a case-by-case basis?

There are never.

And then I'm gonna just say, Chair Hill, I'm gonna I'm asking you to do the same question as well. So, go ahead, please.

Thank you, Senator Rounds. It's very important that each prudential regulator understand exactly the direction that's provided to their examiners when they're on the ground in implementing these regulations and imposing or or or grading against the guidances. So, uh, I would make that the responsibility of each one of us here, uh, at the table as prudential regulators. i would also say that we need to ensure and where we're working to ensure that our examination programs uh the examiner training programs that are offered within the ffiec structure. are up to date and clear with the with the directives that are. need to be contained within the curriculum that our examiners use when they're. um grading against these activities within our financial institutions.

Have you got a way to get feedback from the institutions themselves as to whether or not that advice is being followed by the examiners?

Senator, I speak to financial institutions on a regular basis. Um, there is a very clear feedback loop that I've created with our f- our regulated institutions and state member banks. Uh, so yes, when there are concerns, oftentimes I do hear them.

Chairman Hill, same question.

Thank you for the question, Senator, and I would echo a lot of the the comments from Vice Chair Bowman. Um, ensuring that our examiners understand changes in our approach and that it's being applied. consistently across the country is a big area of focus. Um, and so there are a number of things that we're doing. We did uh, we did issue specific instructions to examiners a couple months ago, describing the new approach to supervision. We are working on FAQs that we plan to release to the examination workforce soon that will be updated on a continual basis. We have started to roll out training for examiners. Um, there's a lot more that needs to be done from a training perspective. All of this is gonna be in iterative process as we continue to make changes to our supervisory approach as we roll out for example changes to CAMELs as we finalize our rural and unsafe and unsound practices um I also have been traveling to a number of our regional and field offices and talking to examiners directly so I think there are a lot of steps in the process but ensuring that examiners understand the new approach and that it's being applied consistently is critical for, for the reforms that we're putting in place.

I I think there there's one other part of that and that's a feedback loop. Do you have a feedback loop, not from the examiners, but from the institutions themselves? Do you have a chance to get out and meet these folks?

Yes, s- similar to Vice Chair Bowman, um, do meet on a regular basis with financial institutions, um, have regular meetings with state banking associations and and things of that nature. Um, so, so do hear a lot of feedback from from institutions as well.

Thank you. Uh. Governor Bowman, Vice Chair Bowman, um, when can we expect the new proposal of the Basel-three endgame?

Senator, we're working together with the OCC and the FDIC to ensure that we can introduce that proposal before the end of March.

That's good. It's been a long time in coming.

It has been, but I think we've been working at record speed since we all became uh the uh the heads of our regulated agencies.

You've been able to arrive at a consensus?

Yes.

Thank you. Uh, also Vice Chair Bowman, treasury yields serve as the benchmark for mortgages and many other forms of credit. Thoughtful adjustments to leverage requirements, including the tier one leverage ratio, could increase banks' capacity to hold treasuries and deposits, improve market liquidity and help ease upward pressure on interest rates, particularly during periods of stress. My question for you, you've previously indicated that you are open to considering further leverage ratio changes once the ESLR proposal is finalized. Do you remain open to additional targeted adjustments, including to the tier one leverage ratio?

Is that a question for me?

Yes.

Uh, yes, Senator, we're open to considering all suggestions and reviewing um uh many aspects or all aspects as

Including the tier one leverage ratio.

It's not something that we have yet looked at, but it is something that that we would certainly be willing to consider reviewing.

Thank you. Thank you, Mr. Chairman.

Absolutely. Thank you, Member Warren.

Thank you very much, Mr. Chairman. So last month, The Wall Street Journal reported on a story about ties between Donald Trump and the top spy in the United Arab Emirates, who is the president's brother and the country's national security advisor. actually called Spy Shake. Um, a few days before Trump was sworn into office, this spy spent half a billion dollars to secretly acquire a forty-nine percent stake in Trump's crypto company. So what does the UAE's top spy get for his half billion dollars? Well, the Trump administration agreed to sell the UAE, our most sensitive AI chips. our own national security experts say the UAE and the SpyShakes companies may be a conduit for funneling high-tech to China, technology that strengthens China militarily. Now, right now, Trump's crypto company, World Liberty, has a bank charter application pending with the OCC, an agency that the president controls. Controller Gould, you run the OCC. Did World Liberty disclose in its application that the Spy Shakes company was a principal shareholder in the proposed bank?

Senator, uh, thank you for the question. Um, I'm not gonna discuss the specifics of any application.

Are you telling us you won't tell, that whether or not they disclosed it? Do you acknowledge that it is supposed to be disclosed, principal shareholders?

Senator. Uh, Senator, uh, unlike the last four years of the Biden administration, under President Trump's leadership, we are actually doing what we say we'll do. And I would refer you to the

Well, let's see if you're doing what you say you will do. Like all applicants for a bank charter, the OCC regulations require world liberty to disclose all principal shareholders, which are persons with at least a ten percent direct or indirect stake in the proposed bank. Those insiders must file a biographical and financial report with the agency. Failure to do so would be grounds for dismissal of the application. Evidently, you have not dismissed the application, so I assume the disclosure was made. Will you show Chairman Scott and me an unredacted application so that we can see that for ourselves and see that you are in fact following the laws?

S- Senator, the only thing to which I will commit is following our established procedures, which are outlined in the regulations that you provided, as well as the one hundred and thirty-one pages of the Comptroller's licensing manual.

We are the banking committee and we have oversight here. I would like to see, in camera, it is not in public. I would like to see that, along with Chairman Scott, I would like to see that application, just to ascertain that the appropriate disclosures have been made. Will you commit to doing that?

Uh, Senator, I will be happy to entertain your request. and discuss with my team and make sure that we're doing and affording you the same uh privileges that we have afforded past administrations in similar situations.