BPInsights: May 10, 2025

If CFPB Rethinks Data-Sharing Rule, Consumer Protection Must Be Top Priority

Recent media reports have suggested that the CFPB may be rethinking its Section 1033 rule by asking a court to vacate it. If the CFPB takes that path, it should prioritize protecting consumers' sensitive financial data from exploitation. The stakes are high: The safe, competitive data-sharing system that banks have worked for years with nonbank partners to build is at risk under the current rule. Policymakers have an obligation to ensure any new rule does not perpetuate those vulnerabilities.

Any rewrite of the rule should acknowledge and address the fundamental problems raised in BPI's complaint and ensure all participants in the data-sharing ecosystem, including fintechs, are held accountable.

• What's happening: Fintechs want the wrong kind of data-sharing protections - those that benefit their bottom line, not consumers, BPI emphasized in a blog post this week. As the court and CFPB consider how to address and potentially revise the rule, this is a problem they should keep in mind.
• Process: If the 1033 rule is vacated, the CFPB could choose to propose a new rule, though it is unclear what specific revisions it would make. The news report comes after a fintech industry group moved to intervene in the case and defend the rule. BPI has emphasized that the existing rule puts consumers' sensitive data, and the robust data-sharing system already in place, at risk. Learn more here.

Five Key Things

1. Committee Advances Bowman Supervision Nomination

The Senate Banking Committee this week approved the nomination of Michelle "Miki" Bowman to be the Fed's vice chair for supervision. The nomination, which now awaits a Senate floor vote, advanced from committee on a 13-11 vote. Bowman has emphasized the necessity of tailoring bank rules to different sizes and business models and making supervision more focused on material risks.

2. McKernan Tapped for Treasury Nomination

President Trump plans to nominate former FDIC Director Jonathan McKernan as Undersecretary of Domestic Finance at the Treasury Department, according to an announcement on Friday. McKernan was previously nominated to lead the Consumer Financial Protection Bureau, and has served as a Treasury Department advisor while awaiting Senate confirmation for that role. "During that time, McKernan has become an integral part of the Secretary's senior team," according to a Treasury Department press release. "His continued service at Treasury will ensure that his experience and expertise are best put to advancing the President's America First agenda."

3. Highlights from House Hearing with Treasury's Bessent

The House Financial Services Committee held a hearing this week with Treasury Secretary Scott Bessent focused on the state of the international financial system. The hearing featured discussions about the IMF and World Bank, trade policy and macroeconomic developments, but banking regulation was also mentioned. Here are a few highlights.

• Leverage ratio: Rep. Frank Lucas (R-OK) reiterated his call for policymakers to reform the supplementary leverage ratio, emphasizing constraints on bank intermediation in the Treasury market. "I believe that it is a high priority for the three regulators, the OCC, the FDIC and the Federal Reserve," Bessent responded. He also said that primary dealers - providers of Treasury market liquidity including the large banks that make markets in Treasuries - demonstrated "very low participation" in a recent Treasury bond auction, "which tells me that there may be a regulatory function there that is preventing them from using their balance sheet for the benefit of the U.S. Treasury."
• Regulatory impact: Rep. Roger Williams (R-GA) expressed support for Bessent's plans to revisit the bank regulatory framework to "better reflect actual risk and ensure a level playing field across the financial system." Williams urged Bessent to consider where U.S. regulations might put American firms at a competitive disadvantage with foreign firms. He also encouraged Bessent to "weigh the combined impact of proposals like Basel III Endgame, the GSIB surcharge and leverage requirements, especially whether these changes could limit banks' ability to support the economy and compete globally."
• Capital: Rep. Andy Barr (R-KY) asked Bessent about the notion of making bank regulations "capital-neutral" and suggested neutrality does not go far enough to promote U.S. competitiveness. Barr gave some context on the Basel Endgame proposal. "When Federal Bank Regulators are talking about reproposing the Basel III Endgame Proposal, they have been saying now for a long time we should do it in a capital-neutral way, abandoning former Vice Chair [Michael] Barr's approach of a huge gold plating of bank capital," Rep. Barr said. "Since the Federal Reserve started to use the term 'capital neutrality' in 2019, however, capital has increased by 10 to 20 percent making the concept of 'capital neutrality' really arbitrary. Large banks are now subject to stress tests, CCAR, GSIB surcharge, and a number of liquidity and resolution requirements." The growth of private credit outside the regulated banking system indicates that "many of the regulations may be too tight," pulling business outside the regulated market, Bessent said. He also expressed concern about smaller banks. "we want to safely and soundly expand the regulated financial system and get them on equal footing. And I think that these capital levels that are predictable are very important for that."
• AML: Rep. Barry Loudermilk (R-GA) expressed concern that the threshold triggering a Currency Transaction Report in anti-money laundering rules is too low because it has not been adjusted for inflation. Loudermilk asked Bessent what threshold level balances privacy and compliance costs with utility of the reports for law enforcement. "We are now examining that, and we are finding that sometimes, higher is better, sometimes lower is better, but we have discovered that there are approximately 40 counties on the U.S.-Mexico border that account for a substantial amount of nefarious behavior by the cartels, so we have lowered that to $200 and we are finding great efficacy there in pushing the cartels back into Mexico and not allowing them to deal in the United States," Bessent replied. "So, I would say sir, it's a moving card game." Loudermilk also expressed concerns that, particularly for smaller banks, illicit finance detection is "like looking for a needle in a haystack because of the pure volume of reports that are being made." Bessent said "m hypersensitive to the needs of the small community bank and the undue burden that much compliance is placing on them. And we are working across a variety of ways to lower these costs."
• Digital assets: Rep. Bryan Steil (R-WI), the House panel's leading lawmaker on digital assets, noted that the STABLE Act House stablecoin legislation authorizes Treasury to identify which foreign stablecoin regulatory regimes are comparable to the U.S. He asked Bessent if there are lessons to be drawn from abroad in this area. "I think that we have the blueprint with the bank regulation and adherence to anti-money laundering laws around the world, financial stability … I would guess that 70 percent of the countries would be very easy to judge; yes [or] no. And then there will be another group," Bessent said. Bessent also said that "there is a solution to banks to participate" in crypto "whether it's through custody or their own coins."
• SIFI: Rep. Young Kim (R-CA) referred to a framework for evaluating nonbank systemically important financial institutions issued by former Treasury Secretary Janet Yellen. Yellen's updated framework "overlooks the importance of prioritizing an activity-based standard and a cost-benefit analysis," Kim said. She asked Bessent if the Financial Stability Oversight Council, headed by Treasury, planned to reassess the 2023 guidance "so that it is more closely aligned with the thoughtful process" created in 2019. Bessent responded: "That is on our agenda."
• FDIC nomination: Rep. David Scott (D-GA) pressed Bessent on why the President has not yet nominated a permanent FDIC chair. The FDIC is currently being led by Acting Chair Travis Hill. Bessent pointed out that "under the previous administration, there was only an acting chair of the OCC for five years" and said that "Mr. Hill is a very capable regulator."

4. OCC Revises, Rescinds Merger Measures

The OCC this week reinstated, via an interim final rule effective immediately, expedited reviews and streamlined application processes to the agency's procedures for evaluating bank combinations. The OCC also rescinded a policy statement issued in 2024. BPI had expressed concern about the previous rule and the policy statement, emphasizing their harmful effects on an already uncertain M&A landscape.

• Congress: In addition, the Senate this week passed a Community Reinvestment Act resolution to eliminate an OCC merger rule that exacerbated uncertainty in the bank M&A environment and cemented an arbitrary opposition to larger bank mergers. The legislation, introduced by Sen. John Kennedy (R-LA), passed on a 52-47 vote. The House is expected to vote on a companion measure sponsored by Rep. Andy Barr (R-KY).
• Encouraging signs: BPI published a blog post this week taking stock of recommended policy changes in bank M&A from earlier this year and observing that the recent Capital One approval is an encouraging sign of a return to sensible rigor in merger reviews.

5. Watchdog Report Finds CFPB Lacks Effective Limits on Access to Sensitive Supervision Data

The CFPB does not effectively limit access to confidential supervisory information (CSI), according to an Inspector General report this week. The report resulted from an IG evaluation of the agency's controls on supervisory data after the CFPB suffered a major breach in 2023. The Inspector General recommended the CFPB reduce the risk of unauthorized access to CSI by "updating its guidance to limit access to such information on a need to know basis and clearly defining when that need to know exists." The report also flagged that CFPB guidance for managing CSI breaches does not set expectations for "assessing and documenting the severity of breaches and determining, enforcing, and documenting consequences for responsible employees." The report said: "Further, the agency does not conduct trend analysis on the causes of CSI breaches to determine the appropriate adjustments to controls based on reoccurring themes." The CFPB may underestimate the risks of CSI breaches without formal guidance for determining their severity. The report also found that the CFPB lacks a defined process for notifying financial firms of CSI breaches.

• Broader context: The CFPB report as well as the recently disclosed OCC breach indicate a pattern of weak data security and incident response processes across agencies. Collectively they raise concerns about the handling of sensitive financial information, the breadth of data that government agencies are accumulating in the supervisory process and the need for transparent communication between supervisory agencies and the firms they supervise.

In Case You Missed It

CFPB Retreats from Buy Now, Pay Later Enforcement

The CFPB this week said it will "not prioritize" enforcement actions on buy now, pay later lending. Such loans, often offered by fintechs, enable customers to spread the full cost of a purchase into a few segments, usually four. The loans have evoked critiques that they encourage excessive spending and downplay their impact on credit scores if unpaid by advertising themselves as interest-free. The rule treated BNPL loans as similar to credit cards. The CFPB said it would focus its supervision and enforcement on "pressing threats to consumers, particularly servicemen and veterans" and added that it is "further contemplating taking appropriate action to rescind Buy Now, Pay Later."

How to Make the Global Market Shock More Coherent

The Global Market Shock, the part of the Federal Reserve's stress tests that evaluates how banks with large trading desks would withstand intense stress, is incoherent in its design, likely painting a significantly inaccurate picture of how banks' capital would be depleted under real-world stress, according to a new BPI analysis. The analysis explores inconsistencies in the GMS and offers recommendations for how it could improve to more accurately convey how banks would respond to severe shocks.

What is coherence? A coherent scenario in economic modeling is internally consistent and targets the set of risks that the designer intends to capture. Internal consistency means the sizes of shocks in the test and the correlations between shocks make sense in the context of the risks being targeted.

Why is it necessary? Scenario coherence makes the results of the GMS interpretable. It makes clear what risks are being targeted, how likely the risks are to materialize in the current market environment and exactly what assumptions are being made about each risk.

Gaps in coherence: The GMS currently is not coherent. To name a couple of examples:

• Illiquidity risk calibration is completely opaque. It's impossible to tell how likely the assumed illiquidity risk is or whether it makes sense in the full scenario's context.
• Correlations between shocks across or within asset classes are unexplained.

Why it matters: The incoherent scenario raises a concerning question: Are the risks tested in the GMS realistic and plausible, or are they essentially so rare as to be irrelevant, with more relevant, material risks left unanalyzed?

How to make the GMS coherent: One way is to follow a methodical process:

• Conduct a risk identification process that identifies the most important risks in the current market environment
• Write a GMS scenario narrative that describes the scenario in detail, showing how the narrative captures the identified material risks
• Develop econometric models for the risk factors to make explicit the assumptions being made.

BPI's new note shows how this process would work.

Big picture: When considering changes to make the GMS more coherent, the Fed should also consider the risks already captured in other existing or contemplated regulatory capital processes, such as the FRTB, so that risks are not duplicated by the GMS. The GMS will be a more effective regulatory tool if it captures different risks than other capital methodologies.

The Crypto Ledger

Here's the latest in crypto.

• Senate vote: An effort on Thursday to tee up Senate consideration of major stablecoin legislation with a procedural vote failed. The procedural vote was 48-49, with Democrats opposing it as well as Republican Sens. Josh Hawley (R-MO) and Rand Paul (R-KY). The bill, known as the GENIUS Act, would set out a regulatory framework for payment stablecoins. Negotiations around the bill are continuing, and it is likely to come up again for a vote.
• OCC: The OCC this week issued a new interpretive letter clarifying permissible activities for banks related to crypto-asset custody and execution services. The letter confirms that national banks can buy and sell assets held in custody at their clients' direction and are permitted to outsource to third parties "bank-permissible crypto-asset activities, including custody and execution services, subject to appropriate third-party risk management practices." The letter marks another step forward in the OCC's efforts to reverse an ambiguous and often preclusive posture about banks' use of digital asset technology. The FDIC and Federal Reserve have taken similar steps recently, as BPI has advocated in letters to the President's Working Group.
• House Dems protest hearing: House Democrats led by Financial Services Committee Ranking Member Maxine Waters (D-CA) staged a walkout from a House hearing on crypto market structure. Waters expressed concern that the President would reap financial benefits from draft House legislation that would expand CFTC oversight of the crypto market.

Traversing the Pond: What's New in International Banking Policy

Here's the latest in international banking policy.

• ECB on market risk capital: The European Central Bank staff responded to the European Commission on the Fundamental Review of the Trading Book, a key element of Basel capital requirements. The ECB indicated that postponing FRTB application for a further year or making major amendments to the framework is "unnecessary from a prudential viewpoint." A further delay would fail to resolve uncertainty and could penalize banks that have already prepared for implementation, the response said. The document signals openness to a combination of options, such as delaying the internal models approach and introducing the standardized approach with targeted adjustments. The ECB also indicated openness to temporary simplification measures to promote a more risk-based supervisory approach for the implementation phase of FRTB.
• UK mortgage rules: The UK's Financial Conduct Authority launched a consultation seeking public input on simplifying rules for mortgages.
• Account closures: Draft legislation in the UK would amend regulations to require banks and other payment service providers to give customers at least 90 days' notice before closing their account or terminating a payment service. The current notice requirement is two months. Banks must also explain to customers in writing the reason for an account termination.
• EU sustainability: The European Commission this week published a Call for Evidence to help assess the impact of a revision of the Sustainable Finance Disclosure Regulation, a key climate disclosure measure. The review aims to simplify the framework, enhance its usability and prevent "greenwashing."
• BAFA statement: The British American Finance Alliance released a statement after the UK-U.S. trade deal was announced this week encouraging both countries to continue working to broaden and deepen the agreement, and noting that "our unique partnership in financial and related professional services would benefit from closer alignment in technological innovation and other areas." BPI is a member of the BAFA coalition.

PNC Announces Wiedman as President

PNC recently announced that Mark Wiedman has been appointed as president of the corporation and its subsidiary, PNC Bank N.A. Wiedman will report to PNC CEO and Chairman William Demchak.