Banking Regulators Highlight Shift in Supervisory Priorities

Banking regulators testifying before the House Financial Services Committee described a coordinated shift toward supervision centered on material financial risks rather than process driven mandates. The regulators also focused their remarks on new fair-access safeguards and implementation of the GENIUS Act’s stablecoin framework.

At the hearing titled Oversight of Prudential Regulators:

Michelle W. Bowman, Vice Chair for Supervision at the Federal Reserve Board, said the banking system remains sound but emphasized that regulatory frameworks must be modernized so banks can compete with nonbank financial institutions. She called for a level playing field through clear digital asset guidance and GENIUS Act–mandated stablecoin rules, while also urging relief for community banks via updated BSA/AML reporting thresholds. Ms. Bowman highlighted ongoing work to refine the capital framework, explaining that a "bottom up" Basel III approach is intended to preserve mortgage credit access and that recent leverage ratio changes are meant to stop discouraging low-risk activities. She also described a supervisory pivot toward material financial risks rather than administrative deficiencies, confirming the removal of "reputational risk" from exams and consideration of rules to prevent "debank[ing]" based on political or religious beliefs.

Jonathan V. Gould, Comptroller of the Currency, explained that the OCC is resetting its risk tolerance to refocus supervision on "material financial risks" instead of administrative process, arguing that a decade of risk-elimination has stifled innovation and constrained credit. He detailed efforts to end "debanking," noting that the OCC is enforcing fair access standards, so customers are not denied services based on political or religious beliefs. Mr. Gould outlined plans to modernize the federal banking system by implementing the GENIUS Act to safely integrate stablecoins, reproposing Basel III capital rules to better balance prudence with growth and deploying technologies like AI to streamline supervision. He also underscored a commitment to tailored regulation for community banks to reverse the "too small to succeed" dynamic, while simultaneously addressing internal shortcomings, including a major data breach and past hiring misconduct.

Kyle S. Hauptman, Chair of the National Credit Union Administration ("NCUA"), reported that the credit union system remains strong with an aggregate net worth ratio of 11.11%, while the agency is aggressively pruning obsolete regulations and rejecting "regulation by enforcement" to foster innovation. He described a new strategic plan centered on main-street priorities and responsible innovation, including leveraging GENIUS Act authorities to integrate payment stablecoins and digital assets into the credit union system. Mr. Hauptman noted that the NCUA is supporting small and de novo credit unions through a provisional charter initiative and a voluntary separation program that will shrink agency staff by nearly 23% by the end of 2025. He also emphasized modernization of the agency’s technology posture, including new AI resources to help credit unions manage emerging risks and remain competitive in a rapidly evolving financial landscape.

Travis Hill, Acting Chair of the Federal Deposit Insurance Corporation ("FDIC"), outlined a reform agenda to shift supervision away from process-driven mandates toward "core material financial risks," including establishing an independent Office of Supervisory Appeals and raising the continuous examination threshold to $30 billion. He described the agency’s pivot on social and political issues, citing withdrawal of climate-related financial risk principles, a proposal to rescind the 2023 Community Reinvestment Act rule and revert to the prior framework, and proposed protections against "debanking" based on political beliefs and the use of "reputational risk" in supervision. Mr. Hill also emphasized renewed attention to capital efficiency—including a proposal to lower the Community Bank Leverage Ratio to 8%—and confirmed that the FDIC is actively implementing the GENIUS Act to license and supervise payment stablecoin issuers.