BPInsights: December 13, 2025

BPI Responds to OCC Debanking Report

The OCC released a report on Wednesday on bank customer account closures. The Bank Policy Institute issued a statement:

"It's in banks' best interest to take deposits, lend to and support as many consumers and businesses as possible to drive economic growth. The industry supports fair access to banking and is already working together with Congress and the administration to ensure banks are able to serve law-abiding customers. We also support recent regulatory efforts and clear and consistent standards that protect access to America's banking system while maintaining sound risk management."

Fair Access Principles:

BPI and other associations issued a set of principles in August for policymakers to consider on fair access to banking services as they implement the President's Executive Order on account closures.

• Competition and Free Enterprise. Regulators should recognize the unique priorities of banks. Banks are private enterprises with obligations to maximize value to shareholders through providing appropriate services to customers and communities, managing their balance sheets, operating in a safe and sound manner and ensuring compliance with all applicable laws and regulations, including consumer protection laws. The market for financial services in the United States is highly competitive. Individual financial institutions must be able to make their own risk- and business-based decisions consistent with their particular business models, strategic priorities and expertise, taking into account safety and soundness standards. Financial institutions also must be permitted to offer different terms and pricing in accordance with sound risk-management and prudent business practices.
• Harmonization with the Bank Secrecy Act and Law Enforcement. Any legislative or regulatory solution should explicitly allow financial institutions to take actions to protect against financial crimes risk as required under the federal BSA/AML and sanctions laws and regulations and to comply with lawful requests by law enforcement. Banks must be permitted to make risk-based decisions to manage and mitigate financial crimes risk. Regulations should be modernized to provide clarity about what information can be provided, consistent with the Bank Secrecy Act, to provide any explanation of the circumstances of a denial of service or account closure. Banks should not be required to disclose proprietary methods or strategies, confidential supervisory information, or information that would interfere with state or federal law enforcement investigations.
• Scope of Fair Access Requirements. Fair access requirements should apply to deposit accounts and fee-based services of an insured depository institution, and similar accounts of non-bank financial institutions. If fair access requirements apply to lending, credit activities, or other financial services or products, depository institutions must be allowed to manage their risks effectively. In accordance with existing regulatory standards, regulators should not require banks to provide products or services that do not make financial or strategic sense for the institution, including products and services they are not equipped to provide (e.g., a bank without relevant expertise should not be required to engage in aircraft financing) or that exceed the bank's established risk appetite.
• Preemption. As provided pursuant to the Supremacy Clause of the U.S. Constitution, federal requirements must broadly and expressly preempt any non-federal fair access or account closure legislation to avoid inconsistent and unduly burdensome requirements across 50 states.
• Enforcement and Penalties. Requirements should be enforced by the financial institution's appropriate federal financial regulatory agency, informed by existing consumer complaint mechanisms. Any violations should be subject to ordinary proceedings and penalties under the Federal Deposit Insurance Act (12 USC 1818). There should be no private rights of action, which could result in costly plaintiffs' actions and increase the cost of services to customers. To align the interests of the public, financial institutions and regulators, these new requirements should reaffirm that federal financial regulatory agencies may not require a bank to close an account or otherwise take any supervisory or enforcement action against an institution solely based on reputation risk.

Five Key Things

1. OCC Conditionally Approves Trust Charter Applications

The OCC on Friday conditionally approved applications for national trust bank charters for First National Digital Currency Bank and Ripple National Trust Bank. It also conditionally approved applications to convert from a state trust company to a national trust bank for BitGo Bank & Trust, National Association, Fidelity Digital Assets, National Association and Paxos Trust Company, National Association.

Greg Baer, BPI President and CEO, responded to the decision:

"Today's decision by the OCC to grant conditionally five national trust charters leaves substantial unanswered questions. Chiefly, whether the requirements the OCC has outlined for the applicants are appropriately tailored to the activities and risks in which the trust will engage. We hope the OCC will share more details about these applications so the public can better understand the rationale behind today's decision."

Gould Defends Chartering Regime: Earlier this week, OCC Comptroller Jonathan Gould pushed back at criticism that recent nonbank applicants for national trust charters would engage in non-fiduciary activities, exceeding the legal bounds of the charter. "What they fail to acknowledge is that the OCC has permitted national trust banks to engage in nonfiduciary custody activity for decades," he said. Gould expressed concern that overly stringent guardrails for charter applicants based on technology would constrain innovation in the banking system.

• Opaque and Untested. BPI recently raised concerns that the public versions of these recent applications have not included sufficient information to evaluate the applicants' proposed activities. In addition, BPI has urged the OCC to preserve the integrity of national trust charters. "The OCC's trust charter authority is limited to institutions predominantly engaged in trust and fiduciary activities," BPI said in a statement. BPI has noted that some applicants appear to propose to engage in activities such as facilitating payments and taking deposits that closely mirror core banking functions, yet the applicants would avoid obtaining deposit insurance or being subject to consolidated supervision. Such applications "would permit the national trust bank charter to be used in a new and untested manner that could significantly increase risks to the U.S. financial system," BPI wrote in a comment letter on the Connectia trust charter application.

Learn more about charters here.

2. BPI Statement on Interest on Reserve Balances

Senate Homeland Security and Governmental Affairs Committee Chairman Rand Paul (R-KY) released a report on Wednesday mischaracterizing the Federal Reserve's payment of interest on reserve balances as a subsidy to large banks. The Committee held a hearing on IORB on Thursday, Dec. 11, where lawmakers considered Sen. Paul's legislation to prohibit the payment of IORB. The Bank Policy Institute released a statement in response:

"The Federal Reserve's ability to pay interest on reserves is one of the monetary policy tools the Fed uses to control rates - not a subsidy for banks or a cost to taxpayers. To the contrary, Senator Paul's proposal would increase the cost of the national debt, push up interest rates and make life less affordable for American households and businesses."

Background: The prohibition of interest on reserve balances has been suggested to save the government money but, in fact, eliminating interest on reserves would instead likely cost the government money and significantly harm the economy by pushing up long-term interest rates, boosting the federal deficit and curtailing the flow of credit to households and businesses.

• Banks of all sizes have reserves at the Fed, and IORB is not a windfall to these banks.
• Eliminating interest on IORB would reduce federal revenue.
• Eliminating IORB would severely harm the economy.

The policy solution: Instead of removing the Fed's ability to pay interest on reserves, which would put the banking system at risk of instability, significantly harm the economy and remove a key monetary policy tool for the Fed to control interest rates, the Fed should continue winding down its balance sheet. This will result in the Fed paying less interest on reserves in general and will leave the Fed with a much smaller footprint in the financial system.

To learn more, access BPI's factsheet here.

3. Senators Weigh Competing Versions of Market Structure Bill

Crypto market structure legislation continued to evolve in the Senate this week as a markup looms in the near future. Democrats negotiating the crypto market structure bill with Banking Committee Republicans said they hope to strengthen prohibitions on stablecoin yield payments and further address illicit finance concerns, according to POLITICO this week. The panel's Republican members sent Democrats a compromise measure that included several potential concessions, such as a section on consumer protection standards for digital assets, language on bankruptcy, a federal floor for crypto ATMs and risk management standards for digital asset intermediaries. According to a summary of the Democratic members' counteroffer on the draft legislation, Democrats expressed concern that "payments of interest or yield on stablecoin balances could pull deposits from the banking system, especially from community banks that play a pivotal role in supporting underserved communities and operate under Community Reinvestment Act obligations … Yield also incentivizes risky behavior and could threaten the financial system if a stablecoin were to lose its value." Senate Banking Chairman Tim Scott (R-SC) had previously indicated that they would like to hold a markup on the bill next week before the end of the year. Banking industry CEOs were scheduled to meet with senators this week to discuss the bill. Payment of interest has been a major point of concern for the industry.

4. Traversing the Pond

Here's the latest in international banking policy.

• ECB Proposes Simplifying Capital Requirements. The European Central Bank this week proposed measures to simplify banks' capital requirements, including tweaking or scrapping AT1 bonds, a form of debt with equity-like characteristics meant to act as a loss-absorbing bolster on banks' balance sheets. The ECB also proposed: reducing the number of elements in the risk-weighted and leverage ratio framework; introducing a "materially simpler" prudential regime for smaller banks; introducing a European governance mechanism that "takes a holistic view of the overall level of capital"; and finalizing the savings and investment union to enhance efficiency of capital markets. The ECB also recommended greater flexibility and less complexity in bank supervision, and simplifications to the EU-wide stress test.
• Sustainability Reporting Requirements Limited. The EU agreed to limit the scope of its sustainability reporting law, which would have significant implications for multinational firms doing business in Europe. The updated version would apply reporting requirements only to European companies with more than 5,000 employees and €1.5bn in annual turnover worldwide, as well as non-EU companies with that amount of turnover within the EU. The new agreement reduced penalties for noncompliance from up to 5 percent to up to 3 percent of global turnover, and eliminated the need for companies to draft mandatory climate transition plans.
• Next ECB President? German officials see slim prospects for attaining the ECB presidency after Christine Lagarde departs the post, according to the Financial Times this week. Prospective German candidates include Bundesbank governor Joachim Nagel and ECB board member Isabel Schnabel.
• Third-Party Risk Management Principles. This week, the Basel Committee on Banking Supervision issued guidance on third-party risk management entitled "Principles for the sound management of third-party risk." The principles set a baseline for banks and supervisors in managing risks associated with third-party providers. They note they will continue to monitor developments related to the digitalization of finance and financial technology from a prudential perspective.

5. How Stablecoins Enable Money Laundering

A New York Times article this week explains how stablecoins can become a vehicle for money laundering and sanctions evasion. In fact, they make money laundering more practical: "Smugglers, money launderers and people facing sanctions once relied on diamonds, gold and artwork to store illicit fortunes. The luxury goods could help hide wealth but were cumbersome to move and hard to spend. Now, criminals have a far more practical alternative: stablecoins, a cryptocurrency tied to the U.S. dollar that exists largely beyond traditional financial oversight." According to the article, digital assets also threaten to undermine U.S. sanctions against terrorists and other foreign adversaries. 'From Kyrgyzstan to Hong Kong, crypto networks are smoothing the way for financial crime,' the article says.

BPI highlighted how these risks could be mitigated through regulations here.

In Case You Missed It

3 Limitations of the Securitization Capital Charge, and Suggested Improvements

Securitization, the pooling of illiquid assets like mortgages or auto loans into tradable securities, is an important source of financing that supports lending to households and businesses. This form of financing has seen limited uptake since the Global Financial Crisis, and the post-crisis capital framework has constrained it. A new analysis by BPI's Scott Frame and Cadwalader's Christopher Horn summarizes new research identifying three key limitations of the capital charge for securitization exposures that applies to U.S. banks. The post proposes adjustments to the capital charge to strike an improved balance between conservatism and risk sensitivity.

Three key shortcomings in the current framework:

1. Relies on the p-factor (a parameter that helps determine the overall capital charge) to establish both the size and allocation of the securitization capital buffer, introducing an inherent tradeoff between conservatism and risk sensitivity.
2. Imposes a securitization capital surcharge even when the underlying asset exposures are performing (e.g., auto loans with payments being made on time).
3. Failing to align the capital requirement for senior securitization exposures with their actual risk.

Proposed improvements would better align risk-sensitivity with conservative capital requirements:

• Decouple the sizing of the required capital buffer from its allocation across securitization tranches
• Impose a securitization capital surcharge only as underlying assets become delinquent
• Set a risk-sensitive capital floor and cap for senior securitization exposures.

Why It Matters. Securitization supports lending and economic growth, and U.S. banking regulators are soon expected to repropose revised Basel III Endgame capital standards.

House Holds Hearing on 'Right-Sizing Capital'

The House Financial Services Subcommittee on Financial Institutions this week held a hearing on "Right-Sizing the U.S. Bank Capital Framework: A Return to Tailoring, Economic Growth, and Competitiveness." Witnesses included Financial Services Forum CEO Amanda Eversole, Davis Polk & Wardwell's Margaret Tahyar, Mayer Brown's Andrew Olmem, the U.S. Chamber of Commerce's Mike Flood and MIT professor Simon Johnson. Here are a few highlights.

• Basel. The upcoming reproposal of Basel capital standards was a key topic of discussion. Subcommittee Chairman Andy Barr (R-KY) emphasized the gold-plated aspect of the previous version of the proposal issued in 2023. "It threatened to elevate capital burdens so far above international norms that entire categories of banking business lines from residential mortgages to market-making could have migrated to offshore institutions," he said.
• Backed by Data. Subcommittee Ranking Member Bill Foster (D-IL) called on policymakers to support the reproposed Basel standards with a "robust cost-benefit analysis." This point was echoed by witness Margaret Tahyar, head of the financial institutions practice at Davis Polk & Wardwell, and FSF CEO Amanda Eversole.
• Tailoring. The hearing emphasized the link between tailored regulatory standards and an effective capital framework. Tailoring of prudential regulations "can free up capital for productive uses, helping banks support small businesses, homebuyers and economic expansion across all of our districts," said Committee Chairman French Hill (R-AR).
• 'More…Isn't Always Better.' Over the last 15 years, U.S. GSIBs "have tripled their capital and now maintain more than $1 trillion in high-quality capital," Eversole said. "But more capital isn't always better … . According to academic research, a 3 percent increase in required capital costs can cost the U.S. economy between $100 billion and $150 billion per year."
• Bigger Picture. Tahyar offered a big-picture view of the capital framework and its effects on the banking system and economy. "Capital is very important, but it is not the only tool in the toolkit. Second, choices about the calibration of capital are political economy choices that involve credit engineering. They can also change the regulatory perimeter. Third, our economy and our banking sector are complex. Tailoring … is the solution so that we do not treat large banks the same as community banks.
• Transparency. Eversole expressed support for the Federal Reserve's efforts to improve stress testing transparency and accountability. Those efforts will "will improve bank risk management, reduce volatility and allow banks to better serve their clients and customers."

The Crypto Ledger

Here's the latest in crypto.

• OCC Confirms Banks Can Engage in 'Riskless Principal' Crypto Transactions. The OCC confirmed this week in an interpretive letter that a national bank may act as principal in a crypto transaction with one customer while simultaneously entering into an offsetting transaction with another customer. "The bank serves as an intermediary and does not hold the crypto-assets in inventory, instead acting in a capacity equivalent to that of a broker acting as agent," the OCC clarified.
• Crypto Firm Paxful to Pay $4M for AML Lapses. Paxful Holdings, the parent company of a now-defunct crypto exchange, will pay $4 million over alleged failure to enforce anti-money laundering policies on its platform. The exchange allegedly facilitated illicit transactions involving funds derived from prostitution, distribution of child sex abuse material and other criminal activity, according to a plea agreement.

• Do Kwon Sentenced to 15 Years. Terraform Labs cofounder Do Kwon was sentenced this week to 15 years in prison on fraud and conspiracy charges tied to the 2022 "crypto winter" collapse.

Things to Watch Next Week

• The Hill and BPI are collaborating to host a symposium on Tuesday, Dec. 16. This event will feature lawmakers and industry experts focused on the future of financial services and how to encourage safe and responsible innovation.
• The Senate Banking Committee's Subcommittee on Financial Institutions and Consumer Protection holds a hearing on Tuesday titled "Ensuring Fair Access to Banking: Policy Levers and Legislative Solutions."
• The House Financial Services holds a markup of pending legislation on Tuesday and Wednesday.

BNY to Match Investment Account Contributions for U.S. Employees' Children

BNY this week announced that it will match the U.S. government's $1,000 contribution to investment accounts for eligible newborns of its eligible U.S. employees, "continuing the company's long history of expanding financial access and opportunity for employees and their families." The recently enacted children's savings account program provides for a $1,000 pilot contribution from the U.S. Treasury into a tax-advantaged account for eligible children born in the U.S. between 2025 and 2028. BNY's match of the pilot contribution will provide an additional $1,000 per eligible child once the account is opened and verified.

Fifth Third Announces Brex Partnership to Bring Benefits of AI to Commercial Banking Businesses

Fifth Third Bank this week announced a multi-year partnership with intelligent finance platform Brex that will enable Brex to bring AI-native finance to the bank's commercial banking businesses. "Through the Fifth Third Commercial Card powered by Brex, the bank's Commercial clients will gain access to Brex's intelligent finance software platform where they can issue corporate cards, automate expense management and make secure, real-time payments," the firms announced in a press release. "They will also benefit from Brex's AI agents that automate complex workflows end-to-end to close the books faster, reduce manual review and control spend."