BPInsights: February 21, 2026

Fed Proposal Marks Progress in Improving Stress Test Transparency

The Federal Reserve's stress test proposal is an encouraging step toward transparency, but further changes would help the agency more fully realize its goal of a more objective process that aligns capital charges with risk, a group of trade associations said in a comment letter today. The associations joining the letter were the Bank Policy Institute, American Bankers Association, Financial Services Forum, Securities Industry and Financial Markets Association, International Swaps and Derivatives Association and U.S. Chamber of Commerce.

"As a matter of process, the Federal Reserve's proposal is a welcome move to the transparency and public comment that the law requires. The proposal also reflects serious efforts to improve the risk sensitivity of the models and the plausibility of the stress scenarios, though further changes are necessary to reflect risk more fully and better align the resulting capital charges. At the end of the day, a transparent and risk-sensitive stress test should promote more rational capital allocation and encourage participation in businesses that earlier limitations in scenario design and modeling may have made inappropriately uneconomic relative to risk, thereby supporting customer choice and U.S. economic growth," the associations stated upon filing the letter.  

Context. The Federal Reserve, for the first time, invited public comment on its stress test scenarios and models, as required by federal law, in line with a 2024 legal challenge filed by BPI and a coalition of partners. The agency issued a proposal seeking comment on the scenarios and models in late October 2025, along with proposing scenarios for the 2026 stress test. The associations commented on the proposed 2026 scenarios on Dec. 1, 2025, and those scenarios were finalized earlier this month. Today's letter addresses the proposed changes to the stress testing process, models and scenarios.

Recommendations. The letter acknowledges the progress made so far in the Federal Reserve's efforts to boost stress test transparency and recommends further modifications to support the Fed's efforts to achieve this goal:

• Consider the stress tests in the context of the overall capital framework, including Basel III Endgame, the GSIB surcharge and reforms to the tailoring framework.  
• Propose all model changes for public comment instead of only "material model changes."
• Retain the Dec. 31 jump-off date for the stress tests to avoid increasing volatility in stress test projections and creating major operational challenges for banks. The proposal would move this date to Sept. 30.
• Firm up discretionary language and codify substantive reforms in regulatory text, including the scenario variable guides and the timeline for the stress testing process.
• For its models, the Fed should increase risk-sensitivity by reducing over-aggregation and expanding segmentation; avoiding internal inconsistencies and double counting; recognizing hedging effects; making efficient use of existing supervisory data; and strengthening transparency and governance around key model choices. The letter also recommends more granular adjustments to the models.

The letter also includes recommendations on the design of the stress test scenarios, building on the associations' comments on the 2026 scenarios.

Five Key Things

1. OCC Proposes Changes to Supervisory Appeals Framework

The OCC this week proposed revisions to its supervisory appeals system, echoing a similar recent move by the FDIC. The proposal, "intended to enhance the independence and efficiency of the appeals function," would replace the OCC's current guidance for handling bank appeals; establish a new board to decide bank appeals; clarify a new standard of review for deciding appeals; establish standards for when stays of material supervisory determinations would be issued pending an appeal; strengthen the agency's ombudsman function; establish standards for expedited appeals and prohibit retaliation against a bank for filing an appeal. Like the FDIC's recently proposed changes, the OCC's proposal reflects an effort to strengthen due process and impartiality in the supervisory appeals process.

2. Fed's Bowman Previews Basel Timing, Mortgage Capital

Federal Reserve Vice Chair for Supervision Michelle Bowman reaffirmed this week that a new Basel capital proposal will likely come in the first quarter of this year. "I've said for a number of months now that we will be aiming to introduce that proposal before the end of the first quarter," Bowman said at an Exchequer Club luncheon this week. "I think we're still working on that time frame." In a separate speech earlier this week, Bowman previewed two forthcoming proposals to increase bank incentives to originate and service mortgages. She noted the diminished role of banks in the mortgage market in recent years, attributing the pullback partly to the punitive capital treatment of mortgage servicing rights.

• Mortgage Proposals. The upcoming proposals would remove the requirement to deduct mortgage servicing assets from regulatory capital while maintaining the 250 percent risk weight assigned to the assets. The Fed will seek comment on the appropriate risk weight for such assets. The proposals would also consider increasing the risk sensitivity of capital requirements for mortgage loans on bank books, Bowman said. "These potential changes would address legitimate concerns about mortgage market structure while maintaining appropriate prudential safeguards," she said.

3. All Pain, No Gain: Requiring Interest Payments on Mortgage Escrow Accounts Gives Consumers No Relief

Laws requiring interest payments on mortgage escrow accounts do not benefit consumers on average, and harm low-income borrowers most significantly, recent BPI research finds. A new blog post this week summarizes the research, which found that the cost of escrow interest requirements led to higher upfront origination fees, with stronger effects for low-income borrowers. Interest requirements also reduce the likelihood that a mortgage application results in origination, signaling potential reduced access to credit and decline in the overall value of mortgage lending.

• Preemption. State requirements for mortgage escrow interest payments are the subject of ongoing litigation over the extent of national bank preemption, a principle that prevents state-level interference with national bank powers. Preemption protects national banks' ability to exercise business judgments without interference from a patchwork of state mandates. The OCC recently issued a proposed determination that would allow national banks to determine their own escrow interest rates irrespective of state requirements, and BPI emphasized support for preemption in comments on the proposal.

4. Treasury Unveils Public-Private Initiative to Strengthen Cybersecurity and Risk Management for AI

In support of the President's AI Action Plan, the U.S. Department of the Treasury on Wednesday announced the conclusion of a major public-private initiative to strengthen cybersecurity and risk management for artificial intelligence in the financial services sector. Over the course of February, Treasury will release a series of six resources developed in partnership with industry and federal and state regulatory partners to enable secure and resilient AI across the U.S. financial system. 

The Artificial Intelligence Executive Oversight Group (AIEOG), a partnership between the Financial and Banking Information Infrastructure Committee and the Financial Services Sector Coordinating Council, brought together senior executives from financial institutions, federal and state financial regulators, and other key stakeholders. BPI Executive Vice President and Head of BITS Heather Hogsett serves on the AEIOG. Together, participants focused on addressing identified gaps in the financial sector's use of AI, developing practical tools that financial institutions can use to manage AI-specific cybersecurity risks while unleashing innovation.

5. How 2025 Bank Regulatory Reform Boosts Economic Growth

In 2022-2024, banks in the U.S. reduced credit supply, partly in anticipation of significantly tighter regulations. In contrast, in 2025, the banking agencies have enacted reforms to make regulations more transparent, more reflective of risk and less volatile, thereby boosting bank lending. 

• By the Numbers. The tightening in standards reduced the level of real GDP by nearly 2 percent, while the more recent reform will boost GDP by over ½ percent by the end of 2026, according to a simple economic model developed by Fed economists. 
• Closer Look. New BPI analysis examines how the 2022-24 tightening in lending standards and the subsequent regulatory reforms in 2025 have affected the economy. The analysis uses a model from a 2012 academic paper by Bassett and colleagues to generate a forecast of GDP with two alternative paths: one where the lending standards in 2022 stayed at a constant level, and one with the actual, significantly tightened path of lending standards. The model forecasts that the level of real GDP would have been 1.8 percentage points higher in Q4 2024 if there had been no significant tightening in lending standards over 2022-24. The analysis uses the same technique for 2025 lending, forecasting that GDP will be 0.6 percentage points higher by the end of 2026 than if there had been no easing in lending standards over 2025. These numbers appear small at first glance but 1.8 percent of nominal GDP is around $560 billion a year in economic output.
• Business Investment. Bank loans to businesses and households grew 5½ percent in 2025, up from a 3 percent rate on average over the previous two years, which was below the rate of inflation (3.1 percent). The pickup was especially notable for commercial and industrial loans, which are loans to nonfinancial businesses used to support equipment investment, research and development and inventories, among other uses.

In Case You Missed It

The Crypto Ledger

Here's the latest in crypto.

• Market Structure. Coinbase CEO Brian Armstrong and Sen. Bernie Moreno (R-OH) appeared on "Squawk on the Street" on CNBC this week while at the World Liberty Forum in Florida, highlighting the unresolved issue of stablecoin yield in negotiations on market structure legislation. See the interview here. For BPI's views on stablecoin yield, see here.
• Figure Data Breach. A data breach extortion group has leaked personal information from nearly 1 million customer accounts, stolen from blockchain-based lender Figure Technology Solutions. The exposure affects approximately 967,000 unique email addresses, along with names, physical addresses, phone numbers and dates of birth. The threat actor group ShinyHunters claimed responsibility for the attack and the subsequent data leak.
• Crypto News Story Reversal. Semafor reported this week that news blogs Investing.com and Crypto Potato took down negative articles about cryptocurrency after the blogs had initially published the stories. "Earlier this month, the crypto public relations and communications firm Chainstory released a study the company conducted saying that many of the crypto press release 'wires' had been paid to promote projects considered to be high-risk or scammy … The study was covered fairly widely within the crypto space, garnering links in Coindesk, Cointelegraph, and other outlets. But some sites that wrote up the survey appeared to have a change of heart," Semafor wrote.
• Warren Seeks Crypto Bailout Pledge. Sen. Elizabeth Warren (D-MA), Ranking Member of the Senate Banking Committee, urged the U.S. Treasury Department and Federal Reserve to provide a written pledge not to bail out cryptocurrency markets in the face of sliding bitcoin prices, saying such a move would disproportionately benefit billionaires. In a letter sent Wednesday, Warren asked Treasury Secretary Scott Bessent and Federal Reserve Chair Jerome Powell for assurances not to prop up cryptocurrency prices with buyouts, guarantees or liquidity facilities.

OCC Conditionally Approves Bridge for Trust Charter

The OCC granted conditional approval to Bridge, a subsidiary of fintech company Stripe, to obtain a national trust bank charter, according to a blog post by the firm this week. "Once fully approved, the charter will enable Bridge to operate stablecoin products and services under direct federal oversight, a critical step in enabling businesses everywhere to build safely on top of these exciting new rails," Bridge said in the blog post. BPI has expressed strong concerns about access to banking charters for crypto and fintech companies without adequate prudential oversight, and about such firms engaging in activities that stray beyond the limits of a national trust bank charter.

CEA: CFPB Compliance Costs Radiate to Consumers

This week, the White House Council of Economic Advisers issued a report titled "Estimating the Cost of the Consumer Financial Protection Bureau to Consumers" saying that the CFPB has increased the compliance and liability costs associated with consumer financial products, which ultimately impose costs for consumers in the form of higher prices and reduced product availability. The CEA estimates that since 2011, the CFPB has cost consumers between $237-$369 billion. Of that total, the CEA found that increased borrowing costs amount to at least $222-$350 billion ($160-253 per borrower) from the CFPB's inception in 2011 through 2024.

Traversing the Pond

Here's the latest in international banking policy.

• Lagarde's Future. European Central Bank President Christine Lagarde has expressed her intention to serve until the end of her term in October 2027, despite speculation about her early resignation. The Financial Times this week initially reported that she may leave before her term is finished, but later this week, the Wall Street Journal reported that Lagarde's "baseline" would be staying until the end of her term.
• Basel Committee Warns on SRTs. A Basel Committee on Banking Supervision paper this week warned of risks associated with synthetic risk transfers that warrant continued monitoring. "Risks associated with SRT use, such as banks' increased dependence on NBFIs, are acknowledged and, to some extent, actively managed by market participants," the BCBS said in an accompanying release. "However, they merit continued monitoring by supervisors as SRT markets continue to grow."
• ECB Updates Liquidity Facility. The ECB recently refreshed its Eurosystem repo facility for central banks, known as EUREP, to "make it more flexible and effective in supporting the smooth transmission of euro area monetary policy." The facility will provide standing access for a broad set of central banks against high-quality euro-denominated collateral. The move was framed in press reports as a bid to cement the euro's position in global financial markets long dominated by the dollar.
• FSB Appoints Enria to Resolution Review Position. The Financial Stability Board this week announced it has appointed Andrea Enria to review FSB crisis preparedness. The strategic review aims to strengthen preparedness to respond to emerging vulnerabilities and recent changes in the financial system; refine internal processes and organizational structure; and strengthen the central role of the FSB's standard for effective resolution regimes as the international standard for banks in that area.

FOMC Minutes Highlight Financial Stability Risk, Stablecoins

On Wednesday, the Fed published the minutes of the meeting of the Federal Open Market Committee that took place Jan. 27-28, 2026. At every other meeting, including the January meeting, there is a presentation by the staff and discussion by the FOMC participants on financial stability. Staff characterized financial stability risks as "notable" reflecting elevated equity prices; high leverage at hedge funds and insurance companies; and significant growth in stablecoins, which may be vulnerable to runs. Funding risks at banks were judged to be within historical norms and bank capital ratios are high, although staff noted that banks' "market-adjusted" capital ratios were low and sensitive to long-term interest rates. Meeting participants expressed concerns similar to those of the staff and were also worried about the financing of rapid growth in the AI sector.

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Member News

Banks Build Tokenized Deposit Network

U.S. banks, including Huntington Bank, First Horizon, M&T Bank and KeyBank, are working with blockchain platform the Cari Network to build a tokenized deposit network. Cari, spearheaded by former OCC Comptroller Eugene Ludwig, will launch a "minimum viable product" at the end of March, then a pilot program in the third quarter of 2026. Tokenized deposits enable banks to compete with less regulated digital asset firms while preserving safety and soundness. Read more here.

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