BPInsights: April 26, 2025

Trump: No Intention to Fire Powell

President Donald Trump is not planning to dismiss Fed Chair Jay Powell, according to the Wall Street Journal this week. Trump had been privately discussing the prospect of firing the Fed chair, but decided against it after advisors warned him it could cause market turmoil and legal ramifications. "I would like to see him be a little more active in terms of his idea to lower interest rates…but, no, I have no intention to fire him," Trump said.

Five Key Things

1. Fed, FDIC Withdraw Policy Statements on Banks and Crypto

The Federal Reserve and FDIC on Thursday withdrew two policy statements on banks' crypto-related activities. BPI expressed support for the action in a statement:

Banks have been effectively barred from engaging with digital assets by policies that treat financial innovation like a privilege, not a possibility. The decision by the FDIC and the Fed to follow the OCC's lead and rescind two of the most troublesome policy statements is the right move. It empowers regulated financial institutions to better serve their customers safely and invest in innovative new products and services to support America's global competitiveness.

2. Financial Regulatory Agencies Face New White House Requirements

The Office of Information and Regulatory Affairs recently issued new guidance to federal agencies implementing a February executive order that expands the White House's role in federal rulemaking. The OIRA memo instructed independent regulatory agencies to appoint a regulatory policy officer by Monday, April 21. The order does not apply to the Federal Reserve's monetary policy function, but does apply to Fed bank regulations. It also applies to the FDIC, OCC and CFPB.

3. Paper Explores Lessons for Discount Window Stigma from Abroad

The challenge of discount window stigma has vexed the Federal Reserve for decades. A new paper by Yale University fellow Susan McLaughlin, former head of the Fed's discount window and chief operating officer of the Federal Reserve Bank of New York's Markets Trading Desk, explores potential solutions gleaned from foreign central banks. The paper notes that banks' reluctance to use the discount window poses risks to financial stability by constraining the Fed's ability to mitigate runs and contagion under stress. McLaughlin examines several tools in central bank toolkits, including standing liquidity facilities, overnight or term liquidity provision to banks and aspects of central bank operating frameworks. Notably, she outlines discrepancies between different jurisdictions on how examiners treat central bank borrowing capacity in evaluations of banks' funding plans. "Including central bank borrowing capacity in supervisory measures of contingent liquidity resources helps to reduce stigma," McLaughlin writes. The paper recommends that the U.S. allow banks to count capacity to borrow at the central bank's on-demand liquidity facility in their internal stress tests and/or resolution plans, like some other jurisdictions do.

• Legitimate liquidity source: "Aligning regulatory and supervisory requirements for banks' liquidity risk management with the idea that the Fed's standing liquidity facility for sound banks is a legitimate source of contingent liquidity would go a long way toward reducing stigma," McLaughlin says.
• Unique features: McLaughlin observes "features that amplify stigma" in the U.S. that other central banks don't face, such as regular required disclosures identifying discount window borrowers and the FHLB system as an alternative to the Fed for banks seeking liquidity. "To compensate for these challenges, reducing stigma might thus require the US to go further than others must to incentivize bank usage of central bank liquidity facilities when needed. For example, supervisors could count some fraction of a sound bank's pre-positioned loan collateral in the numerator of its Liquidity Coverage Ratio (LCR), on the grounds that this collateral could be monetized on a same-day basis at the standing facility or include it in the denominator of the ratio as an expected inflow from borrowing from the routine, on-demand facility."

4. Bessent Calls to Reverse 'Regulatory Overreaction'

Treasury Secretary Scott Bessent emphasized the need to address the "regulatory overreaction" after the Global Financial Crisis. He said the Treasury Department will partner with the Fed, OCC and FDIC to "come up with a system that makes the regulated financial system prosper again." In remarks at an Institute for International Finance event, Bessent observed the growth of finance outside the regulated ecosystem, such as private credit. "It tells me the post-2008 regulatory corset is too tight on the regulated institutions," he said. He also noted a key difference between the U.S. and G7 counterparts: the abundance, and variation in size, of U.S. banks; a pullback by small banks has created stagnation on Main Street, he suggested.

5. FDIC Announces Resolution Plan Exemptions

The FDIC late last week announced exemptions from certain content requirements for banks' "living will" or resolution plans. Banks file these plans to indicate to regulators that they are prepared to wind down in an orderly way in the event of failure. The agency also released updated FAQs related to these exemptions and other FDIC expectations. The new exemptions and FAQs reverse aspects of the resolution planning requirements that the FDIC adopted in 2024. Notably, the exemptions reverse the requirement that banks must adopt a bridge bank resolution strategy as the default, instead allowing firms flexibility to determine the most appropriate resolution strategy for the institution, or to plan for multiple potential strategies. The changes align with Acting Chair Travis Hill's goal of simplifying resolution planning, broadening the strategy discussion beyond a bridge bank solution and orienting resolution planning toward the goal of selling the failed bank as soon as possible. Hill has criticized previous resolution planning measures as inferring the wrong lessons from the 2023 bank failures. He has also indicated the FDIC will increase its engagement with large banks in their capacity as potential acquirers of failed banks.

In Case You Missed It

Op-Ed: OCC Breach Shows Who the Real Insider Threat Is

The OCC breach under the Biden administration shows that the real insider threat is overreaching regulators failing to uphold the cybersecurity standards they demand from banks, according to a RealClearMarkets op-ed this week by former OMB Chief Economist Vance Ginn. The Biden OCC endangered troves of sensitive financial data, the op-ed noted. Ginn characterizes the breach as the symptom of a broader web of problems: intrusive regulation, and supervision focusing on the wrong issues. "There's a lesson here: the greatest threat to the financial system isn't just foreign hackers-it's a government regulator that demands security perfection from the private sector while failing to follow its own rules," Ginn wrote. "If we want a secure financial system, we need secure regulators. Let the Trump administration finish what Biden's couldn't-or wouldn't-do: clean house at the OCC, demand accountability, and restore a regulatory framework that protects, rather than endangers, America's banks."

CFPB, Treasury Market, Climate: Rep. Frank Lucas Interview Highlights

Rep. Frank Lucas (R-OK), a senior House Financial Services Committee member, weighed in on several key regulatory topics in a recent interview with Semafor's Eleanor Mueller. Lucas chairs the committee's Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity. Here are some highlights.

• Treasury market pressure: Treasury bond volume has increased significantly while the number of primary market makers has halved, and policymakers must examine "the decisions made that got us to the point where financial institutions don't want to participate," Lucas said. He pointed to bank leverage ratios playing a major role in Treasury market capacity: "It's the SLR requirements and the eSLR requirements, where we made it more difficult for all financial institutions to hold Treasury debt." Lucas said the task force he leads will examine Treasury market liquidity in its next hearing.
• Federal agencies: Lucas predicted there would be "a number of savings achieved in the reduction of the staffing and the capacity of the various regulators," such as the CFPB. He also expressed support for the Fed's independence, while reiterating Republicans' view that the Fed has veered off course from its core mission by wading into environmental and social policy.
• Supervision: Lucas also highlighted overreach in bank supervision. The Fed has a responsibility to ensure banks are run soundly, but "there's a difference between being a good banker and being a banker who's told what kind of loans you can or cannot make in the energy sector, being told what kind of businesses you can support based on how they conduct their business activities internally," Lucas said.

Atkins Signals New SEC Focus in First Remarks as Chair

In a speech at his swearing-in ceremony this week, new SEC Chair Paul Atkins previewed plans to "to protect investors from fraud, keep politics out of how our securities laws and regulations are applied and advance clear rules of the road that encourage investment in our economy to the benefit of Americans." He also said it is time for the SEC to "end its waywardness and return to its core mission that Congress set for it." The SEC under Atkins is expected to play a critical role in crafting a regulatory framework for the crypto industry.

The Crypto Ledger

Here's what's new in crypto.

• PayPal rewards: PayPal plans to offer "rewards" to users on their holdings of its stablecoin. PayPal and Venmo users will be able to earn 3.7 percent annually on holdings of PayPal USD stablecoins in their wallets (Venmo is owned by PayPal), according to Bloomberg. This setup - aimed at incentivizing the use of PYUSD as a form of payment on PayPal's network - is seen by some analysts as a backdoor way of paying interest by calling the yield "rewards." The payment of interest by stablecoins is an important topic of discussion in congressional legislation.
• New remittance network: Stablecoin issuer Circle unveiled a new payments and cross-border remittance network this week. According to CoinDesk, the new network ultimately aims to rival Mastercard and Visa in global payments.

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