BPInsights: April 5, 2025

Stablecoin Bill Moves Forward in House

The House Financial Services Committee on Wednesday advanced a bill setting out regulatory requirements for stablecoins. The legislation, known as the STABLE Act and sponsored by Rep. Bryan Steil (R-WI), lays the groundwork for federal oversight of stablecoin issuers, including nonbank firms. The Senate Banking Committee recently advanced a stablecoin bill, the GENIUS Act; the STABLE Act aims to solve similar issues as the GENIUS Act with the creation of a legal and regulatory framework for stablecoin issuers. Both bills direct federal regulators to apply capital and liquidity requirements and anti-money laundering rules to payment stablecoin issuers, among other requirements.

• BPI response: BPI released a statement in response to the bipartisan committee vote on the legislation: "The integrity of Federal Reserve master accounts underpins the financial stability of America's payment system. We commend Chairman Hill, Subcommittee Chairman Steil and their colleagues in both parties for taking a neutral approach on this issue in the Committee-reported STABLE Act, which ensures that current law on eligibility for master account access remains in place. As the bill advances, we look forward to continued collaboration to ensure that all relevant requirements applied to banks also apply to stablecoin issuers and any other entity that may seek to obtain a master account."
• CBDC: The BPI-endorsed Anti-CBDC Surveillance Act was also marked up successfully on Wednesday by the Committee.

Five Key Things

1. Analyzing the Consumer Costs of Rate and Fee Regulation in Consumer Banking and Credit Card Programs

Rules that attempt to control the pricing of credit often harm access to it for the most vulnerable consumers, according to a new BPI analysis. The analysis examines several recent regulatory proposals - proposed Basel Endgame capital increases, a proposed debit interchange fee cap and the CFPB's credit card late fee and overdraft rules - and shows how each of these measures would raise the cost of credit or decrease its availability, primarily harming the very consumers these rules purport to benefit. The note also examines how incentive effects in policies like late fee restrictions can harm consumers with lower credit scores. Proposals like those outlined in the analysis could undermine the goal of expanding access to credit and banking services to more consumers.

2. House Lawmakers Urge Regulators to Revisit Rules

Republican members of the House Financial Services Committee led by Chairman French Hill (R-AR) recently called on federal financial regulators in a series of letters to withdraw or reconsider certain rules. Here are some highlights.

• Basel Endgame: The members of Congress urged the prudential banking agencies to go "back to the drawing board" on the Basel capital proposal and repropose it for public comment.
• Long-term debt: In the same interagency letter, lawmakers called for regulators to delay the long-term debt proposal until after Basel Endgame is finalized.
• Climate: The interagency letter called on the OCC, Fed and FDIC to withdraw, or substantially revise, guidance on climate risk management and third-party risk management. In the letter to the Fed, lawmakers said the central bank should wait for congressional authorization before "taking steps to regulate financial institutions on climate-related risk."
• Fed: A letter to the Federal Reserve called for withdrawal or modification of several Fed-specific rulemakings. The letter urged the Fed to withdraw the debit interchange proposal and modify the GSIB surcharge proposal.
• OCC: Members called on the OCC to rescind a policy statement on M&A that "unjustifiably overrides the previous common sense approach regarding applications under the Bank Merger Act aimed at expediting and streamlining the application review process."
• SEC: In a letter to Acting SEC Chairman Mark Uyeda, the lawmakers requested that the agency withdraw 14 measures including policies on cybersecurity risk management, open-end fund liquidity risk management and others.
• CFPB: Lawmakers highlighted in a letter to Acting CFPB Director Russell Vought several CFPB rules, including the overdraft rule and credit card late fees rule, that they said warrant reconsideration. Some of the rules emphasized in the letter were issued at the last minute during the final period of the Biden administration. The letter also decried the use of circulars, advisory opinions and informal guidance in lieu of formal, fully transparent rulemaking.
• FDIC: Lawmakers' letter to Acting FDIC Chairman Travis Hill applauded the agency's efforts to rescind certain policies such as the policy statement on M&A, but called for reconsideration or closer scrutiny of other policies, such as living wills guidance.

3. Bank Term Funding Program: Experience and Lessons Learned

The Fed recently released data about the borrowing from its Bank Term Funding Program, which aimed to stanch contagion in the banking sector amid the turmoil of spring 2023 when several banks failed. The data suggest that the program accomplished its goal, but at a significant cost and risk. A new BPI analysis offers takeaways from the data and lessons learned from the program.

• Shortfall in collateral: The Fed did not disclose information about the market values of the collateral for its BTFP loans. The BPI analysis estimates the magnitude of the program's likely significant shortfall in collateral. This estimate is crucial when evaluating how much risk to which the BTFP exposed U.S. taxpayers. The shortfall in aggregate reached more than $20 billion. Because of credit protection provided to the Fed by the Treasury, the Fed probably was not exposed to losses, but the Treasury was, possibly contrary to the legal authority under which the Fed created the BTFP.
• Borrower characteristics: Banks that may have been under pressure were more likely to borrow than other banks.
  • Banks with large deposit outflows, banks with significant unrealized losses on their securities and banks with a large share of uninsured deposits were all more likely to tap the programs.
• Discount window: Banks that had borrowed at the discount window in 2022 were more likely to use the BTFP, perhaps because those banks were less deterred by the stigma often attached to borrowing from the Fed.
  • The program demonstrates the necessity of the discount window as a first-line liquidity source in times of stress.
• Design flaws: A flaw in the program's design enabled the BTFP loan interest rate to fall below the rate that banks could earn simply leaving the loan proceeds on deposit at a Federal Reserve Bank. The resulting arbitrage opportunity induced banks to increase borrowing significantly at the end of the year, even though strains on the banking system had eased. In January, the Fed removed the arbitrage opportunity, and borrowing promptly fell back.

Bottom line: The BTFP attained its objective, but at considerable risk and cost. The Fed should ensure banks are prepared and willing to use the discount window, including having abundant collateral there, when the banking system is under strain, eliminating the need for a facility like the BTFP. The Fed could bolster the discount window's role as a crisis-mitigating tool by recognizing discount window borrowing capacity in liquidity regulations and strengthening its commitment to lend.

4. Fifth Third's Tim Spence: The Federal Government Needs to Lead the Fight Against Scams and Fraud

Fifth Third CEO Tim Spence published an op-ed in American Banker this week urging federal policymakers to form a united front against fraud and scams. The op-ed called on the administration to establish a national fraud prevention task force, unifying fraud-fighting efforts across the federal government. Spence emphasized the urgency of the problem, citing billions of dollars in fraud losses last year. "The problem is, no single government agency is responsible for leading the fight against scams, leaving businesses and consumers vulnerable to increasingly sophisticated criminal syndicates and even hostile nation-states," he wrote. "Americans deserve better. With the new administration in place, now is the moment to change that."

• Policy context: The House Financial Services Committee held a subcommittee hearing on Monday about tools and techniques to fight fraud. The hearing featured witness testimony from industry stakeholders on trends, tactics and best practices in combating fraud. One topic that emerged in discussion: the role of technology and social media in fraud and scams. "Social media is one of the biggest vectors for fraud," Kathy Stokes, director of fraud prevention programs at AARP, said at the hearing. "And we see so much harm coming from them. Yet, we don't see a concerted effort to take down the social media profiles that are there and are known to be related to scams, and a lot more needs to be done by that industry."

5. OCC Withdraws Climate Risk Guidance for Banks

The OCC this week withdrew its participation in interagency principles for climate-related financial risk management for large banks. Acting Comptroller Rodney Hood called the principles "overly burdensome and duplicative." The OCC's existing guidance for banks' sound risk management already accounts for natural disasters, severe weather and other climate scenarios, Hood said in a statement. The action follows the SEC terminating its legal defense of the climate disclosure rule and multiple U.S. banking agencies pulling out of the Network for Greening the Financial System.

In Case You Missed It

EU Proposes Changes to NSFR

The European Commission this week proposed to make permanent the current treatment of certain securities financing and short-term unsecured transactions in the net stable funding ratio, a key liquidity requirement. The current treatment is otherwise set to expire in June 2025, after which these short-term transactions would become subject to more stringent liquidity requirements aligned with the international Basel standards. The transactions in question are ones where assets are temporarily exchanged for cash, such as repos, which are "essential for banks to provide liquidity to markets, particularly for government bonds," the EC said in a release. The Commission framed the proposed action as a means to support liquidity of EU financial markets and promote EU financial system competitiveness.

Highlights from the ECB's Top Bank Supervisor

Claudia Buch, Chair of the ECB's Supervisory Board, gave a recent speech and presentation to a key European Parliament committee that offers insights into the ECB's approach to capital, supervision and other regulatory matters. Here are some noteworthy highlights.

• Costs and benefits: Buch observed the growth in capital among European banks since the Global Financial Crisis and noted the importance of requirements that bolster bank resilience. "To mitigate both the likelihood and the impact of financial crises, a comprehensive package of banking sector reforms has been implemented. Impact assessments show that these reforms have made the banking sector more resilient and that the benefits outweigh potential unintended side effects on lending or growth," she said. Buch also asserted that current capital requirement levels do not hamper banks' ability to lend to the economy.
• Scope for improvement: Buch suggested that some aspects of the European regulatory framework could be improved. "The existing framework is effective in maintaining financial stability without impeding growth," Buch said. "But there is scope for improvement in three areas: supervision, reporting and regulation."
• Competitive position: Buch characterized strong prudential and supervisory standards as an international competitive advantage. "Weakening prudential and supervisory standards may harm the competitive position of European firms," she said. She also emphasized that simplification should not mean deregulation.
• Basel: Echoing recent remarks by other European banking officials, Buch emphasized that firm implementation of Basel rules in the EU is a high priority, despite potential divergence in other jurisdictions.
• FRTB: The EU last week launched its version of Basel bank market risk rules (the Fundamental Review of the Trading Book, or FRTB) for consultation. On the topic of market risk requirements, Buch stressed the need for supervisors' vigilance about volatile markets, and appeared to suggest that the Single Supervisory Mechanism - the consolidated supervisory entity over EU banks - is open to technical tweaks.
• Climate: In response to a lawmaker's question about the EU climate omnibus package, Buch emphasized the importance of proper sustainability reporting. Other risk areas flagged in Buch's various remarks were cyber risk and geopolitical risk.
• Cross-border banking: Buch called for further progress of measures that would eliminate barriers to cross-border banking, such as deposit insurance measures and the Savings and Investment Union.

The Crypto Ledger

Here's what's new in crypto.

• FDIC: The FDIC late last week provided new guidance clarifying that banks under its supervision may engage in permissible crypto-related activities without prior FDIC approval. This stance reverses an approach encapsulated in a 2022 interpretive letter, which the FDIC has now rescinded. That previous approach required banks to seek "supervisory non-objection" - prior approval - before engaging in legally permitted crypto activities. The action aligns with FDIC Acting Chair Travis Hill's efforts to embrace innovative technology and eliminate supervisory ambiguity at the agency.
• Tether: A Washington Post article this week suggested there could be exceptions to stablecoin legislation requirements advancing in Congress for foreign stablecoin issuers such as Tether. The article quotes former regulators who warn of potential risks to financial stability if requirements do not apply to such firms.

ECB Study Suggests Role for Macroprudential Policy in Geopolitical Risk Threats to Bank Solvency

A European Central Bank study this week cautioned that geopolitical turmoil poses risks to bank solvency. These risks can stem from reduced economic activity, higher inflation and other manifestations of geopolitical shocks. While the analysis shows an association between heightened geopolitical risk and lower bank capitalization over the last century, the findings show an uneven impact across different countries. The paper suggests that macroprudential requirements, such as countercyclical capital buffers, can help banks mitigate the effects of geopolitical risk. "While microprudential supervision ensures that geopolitical risk is factored into capital and liquidity planning, macroprudential capital buffer requirements can be released when shocks materialise, thereby supporting banks in absorbing losses while maintaining the provision of key financial services to the real economy," the authors wrote.

• BIS paper: A recent Bank for International Settlements study found that geopolitical risk "significantly dampens cross-border bank lending." That study described geopolitical risk as an equally significant factor to monetary policy in driving cross-border lending.
• Practical considerations: BPI has called for caution on repurposing the CCyB to create a releasable capital buffer. Past proposals have amounted to unwarranted capital increases and often include a blanket ban on bank capital distributions to shareholders when the CCyB is released that will increase banks' cost of capital. As a result, such a change would permanently reduce economic activity.

Key Financial Policy Nominations Advance in Senate

The Senate Banking Committee this week advanced three key nominations, teeing them up for a subsequent Senate floor vote: Paul Atkins for SEC, Jonathan Gould for OCC and Luke Pettit for assistant Treasury secretary for financial institutions.

SLR Reform, Central Bank Independence: FedSoc's Event on the Federal Reserve

The Federalist Society hosted a panel discussion this week on the governance, mission and independence of the Federal Reserve. Participants included Don Kohn, a former Federal Reserve official and the Robert V. Roosa Chair in International Economics at the Brookings Institution, House Financial Services Committee senior member Frank Lucas (R-OK), Mayer Brown partner Andrew Olmem, Mises Institute senior fellow Alex Pollock and Wharton professor Christina P. Skinner. Topics of discussion ranged from monetary policy independence, the role of supervision at the Fed and regulatory initiatives. Rep. Lucas called for reforming the supplementary leverage ratio: "I have continued to push the Fed to finally revisit the [supplementary] leverage ratio and enhanced supplementary leverage ratio. The last few times I've spoken with [Chairman Powell], he agreed with me that U.S. Treasuries should be exempt from the SLR… Why would we punish primary market dealers and constrain their balance sheets for purchasing a nearly risk-free asset that they are required to bid on?"

PRA Proposes to Raise Deposit Protection Limit

The UK's Prudential Regulation Authority this week proposed to increase the deposit protection limit of the Financial Services Compensation Scheme (FSCS) from £85,000 to £110,000. The proposed increase aims to adjust the threshold for inflation and bolster depositors' confidence that their money is safe in the event of bank failure. The new limit, if adopted, would apply starting Dec. 1, 2025. The proposal comes as part of a broader consultation on deposit protection.The consultation also sets out proposals for how the PRA plans to implement the impending law "the Bank Resolution (Recapitalisation) Bill". The Bill itself proposes a new resolution tool enabling industry funds provided via the FSCS to be used to recapitalise a failing firm to support its sale or transfer to a bridge bank, where its use is judged to be in the public interest.

PNC Names Hofmann Head of Retail Lending

PNC Bank this week announced the hiring of Jeff Hofmann as head of retail lending. Hofmann most recently served as the head of the co-brand and business credit card divisions at Wells Fargo. Hofmann reports to Alex Overstrom, head of PNC's Retail Bank, and is based in Philadelphia.

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