Four leading regulators testified in front of the House Financial Services Committee on Tuesday – marking the first en-masse check-in with Trump-era finance figureheads this year since many of them took their posts.
Perhaps predictably, the most frequent subject, arguably, was “tailoring” – a tone set early in the hearing by Rep. French Hill, R-AR, the committee chair, who cited “broad bipartisan recognition” in Congress that banking rules should be adjusted to fit an institution’s size, complexity and risk profile.
“I want to applaud each of your agencies for your work in returning to this standard that was regrettably rejected by many of the supervisory leaders in the Biden administration,” Hill said.
Michelle Bowman, the Federal Reserve’s vice chair for supervision, said she supports increasing “static and outdated” thresholds that, in her view, have forced smaller banks to adhere to rules written for larger lenders. That includes thresholds tied to asset growth, which Bowman said has accelerated in part because of inflation. It also applies to anti-money laundering-related thresholds, beyond which banks must file currency transaction reports and suspicious activity reports, Bowman said.
Rep. Andy Barr, R-KY, chair of the House Financial Institutions Subcommittee, asked Bowman if banks with less than $10 billion in assets may be dissuaded from growing because of the stricter rules they’d have to follow for stretching past that threshold.
“In my experience of working with community banks that are approaching the $10 billion threshold, it certainly does disincentivize their growth,” Bowman said. “It gives them few options to be able to address the additional supervisory requirements that are imposed at that threshold level.”
Bowman noted that the Fed is working to tailor the mergers-and-acquisitions process for community banks, along with the de novo application process.
“We are exploring streamlining these processes and updating the Federal Reserve Board's merger analysis to accurately consider competition among small banks,” Bowman said. “Now is the time to build a framework for community banks that recognizes their unique strengths and supports their critical role in providing financial services to businesses and families throughout the United States.”
Other regulators, too, outlined rules they intend to float in upcoming weeks and months. Federal Deposit Insurance Corp. Acting Chair Travis Hill said he expects to issue a proposed rule to establish the agency’s application framework related to stablecoins later this month.
National Credit Union Administration Chair Kyle Hauptman appeared more determined to weed out rules that don’t apply than to create new ones.
“We are reviewing the entirety of our regulations to focus on measurable and material risks, not on enforcing outdated and obsolete requirements,” Hauptman said Tuesday. “Removing outdated, overly prescriptive, and unduly burdensome requirements will allow credit unions to serve their memberships while NCUA focuses on risks to safety and soundness.”
Jonathan Gould, who leads the Office of the Comptroller of the Currency, indicated his agency would dive deeper to investigate complaints of alleged debanking.
“We will be considering options for evaluating whether and to what extent non-financial factors may have influenced or impacted core banking functions such as credit underwriting practices,” Gould said.
Bowman, meanwhile, looked ahead to a new effort to reconcile with Basel III standards. She assured lawmakers that regulators “don't have a preconceived notion about where we'll land with our capital requirements.”
“We're looking at it from a risk-based approach by each factor and category," she said. “My approach is to address the calibration of the new framework from the bottom up, rather than reverse-engineer changes to achieve pre-determined or preconceived approaches to capital requirements.”
Barr, for his part, cautioned that an “America-first banking regulatory agenda should not seek to achieve international regulatory harmonization for harmonization’s sake.”
“Instead, it should seek to advantage American economic competitiveness,” Barr said, noting that “of course” banks should be well-capitalized and their activities safe and sound.
“But … we should be focused on economic growth as we balance economic and financial stability,” he added.
