BPInsights: October 18, 2025

Fintechs' Mixed Messages on the Biden Administration's 'Open Banking' Rule

Several fintech groups held a virtual town hall event last week on the CFPB's Section 1033 rule. While the conversation centered around the need for a competitive banking system, the importance of innovation and the benefits of safe and secure financial data sharing - all positions that banks and fintechs can agree on - the mixed messaging from the fintech industry may have left some with more questions than answers.

Mixed Message #1

Competition is good. "[C]ompetition is good. Competition is how consumers get better choice, better products and better prices." - Former Rep. Patrick McHenry, Senior Advisor at a16z
But also, competition is bad. "Just like with the airwaves. You can't have 10,000 carriers in America. We don't have enough bandwidth for that. Doesn't make sense." - Alex Rampell, a16z

America is one of the most competitive banking systems in the world, and banks support competition. A robust and competitive data-sharing environment already exists in the U.S., represented by more than 4,000 banks and credit unions and over 10,000 fintech companies. Consumers are capable of accessing their favorite apps and services today as a result of bank-led investments.

Mixed Message #2

The existing data-sharing ecosystem is working. "[T]here have been thousands of these small companies that have popped up where it's really easy to go sign up for Venmo, it's really easy to go sign up and fund your Robinhood account. And it's because the information has been freely available." - Alex Rampell, a16z
But also, banks are undermining data-sharing. "[T]he banks are fighting to maintain their data monopoly here." - Garry Tan, Y Combinator

Private sector innovation has led to the establishment of over 120 data aggregators offering secure access to hundreds of millions of bank accounts, made possible by the voluntary development of secure ways to share consumer data through initiatives like the Financial Data Exchange. FDX's 50% year-over-year increase in secure linked consumer accounts highlights the success of the industry-led innovation in the consumer-permissioned data sharing ecosystem.

Banks also invest heavily in partnerships with fintech companies. Just this year, partnerships were established between Truist Financial and Pollinate and JPMorgan Chase and Plaid, just to name a few. Data-sharing agreements governing many of these relationships have enabled this competitive ecosystem to thrive by clearly defining costs, outlining who is responsible to the customer when something goes wrong, and addressing unsafe data-collection practices like screen scraping to help keep customers safe.

To learn more, click here.

Three Things to Watch Next Week

• Prudential regulators testify in semiannual hearings.
• Comments are due on the CFPB's advance notice of proposed rulemaking on Section 1033.
• The Fed hosts a conference on payments innovation.

Five Key Things

1. Bowman Previews Stress Testing Changes

Federal Reserve Vice Chair for Supervision Michelle Bowman this week previewed a forthcoming proposal to increase transparency and invite public comment on stress test models and scenarios. The stress test reforms are "part of a broader set of capital-related measures designed to right-size and recalibrate the regulatory framework to better balance safety and soundness with the role of the financial system in promoting economic growth," Bowman said at a stress testing research conference on Thursday. In a recent court filing related to BPI's stress testing litigation, the Fed said it expected to propose changes by Oct. 24.

• Model Descriptions. The Fed will provide detailed descriptions of the stress test models, "including assumptions and limitations for each model, as well as the rationale behind key modeling choices," Bowman said. The proposal will seek comment on specific model changes that the Fed plans to implement for the 2026 stress test, she said, "including proposed changes that address the sensitivity of pre-provision net revenue projections to recent bank performance, and to improve the design and related assumptions for certain models including credit losses, operational risk and securities."
• Scenario Insight. The Fed will also seek comment on stress test scenario design, "particularly the guides governing the variables included in the severely adverse macroeconomic scenario." It will provide details on the model that is "used to formulate the paths of the variables that are not determined by a guide for a given annual scenario," and provide insights on the Global Market Shock framework, which applies to banks with large trading operations. In addition, the Fed's proposal would seek comment on the severely adverse scenario intended for next year's stress test.
• High-Level Overview. "While I have attempted to provide a high-level summary of the proposal, it is not possible to capture the depth and breadth of the changes," Bowman said. She also flagged the forthcoming stress test changes in comments at an Institute for International Finance event this week, according to POLITICO.
• Basel, eSLR, GSIB. At IIF, Bowman said the banking agencies would likely finalize the eSLR proposal "in the next few weeks or a month," and the Fed may enact changes to the GSIB surcharge. The Basel Endgame proposal could be "completed in a reasonable timeline," Bowman suggested.

2. Study: Deposit Flight Driven by Interest-Paying Stablecoins Would Hit Community Banks Hardest

Stablecoins that pay interest would amplify the risk of siphoning deposits from the banking system, according to a new study by Andrew Nigrinis. Even modest deposit declines translate into billions of dollars in lost lending, particularly among small banks and among small business and farm loans, for which relationship banking is important and credit alternatives are scarce, according to the study. If stablecoins are allowed to pay interest, the risks of such deposit flight would multiply, with $1.5 trillion in lost bank lending and the heaviest impact on community banks.

• Closing the Loophole. Nigrinis outlined the effects in an op-ed for Open Banker this week. "[I]f wallets and exchanges are permitted to offer yield, even indirectly, deposits will migrate in far greater volumes, and with them goes the funding that underwrites loans to households, small businesses, and farms," he wrote. "The result is not a simple shift in market share between banks and fintechs; it is a contraction in the credit that sustains economic growth. Congress has already taken an essential first step by prohibiting stablecoin issuers themselves from paying interest. Closing the loophole at the intermediary level would build on and reinforce those initial guardrails, ensuring they remain effective as the market evolves."

3. AI, Payments, Financial Inclusion: Highlights from DC Fintech Week

Regulators, fintech and bank executives and policy experts convened this week at the DC Fintech Week conference to discuss important issues in banking, fintech and payments. Here are some highlights.

• Giving Tech a Shot. Federal Reserve Governor Christopher Waller recommended exploring payments technology rather than fearing it. "We need to stay up on technology, not be afraid of it - see where it leads us. Maybe it leads nowhere, but give it a shot." The Fed will host a conference next week on payments innovation.
• Ostrich vs. Overreach. SEC Chair Paul Atkins described his agency's approach to innovation as vacillating between two extremes: "One was ostrich with a head in the sand, hoping maybe this would all go away, and then the second was basically regulation through enforcement. So we're doing neither of those." Atkins' SEC is trying "to make sure that we build a strong framework to actually attract people back into the United States who may have fled, but then also to be able to build a framework that makes sense for the future, so that innovation can thrive."
• Market Structure Bill. Brent McIntosh, chief legal officer at Citi, explained that the bank's strategy on crypto, tokenization and other innovation is "being led here by where our clients want to go." He emphasized the need for clarity and guardrails on crypto, with some unanswered questions in the absence of Congress' market structure legislation being finalized: "You're not going to see deep engagement in the financial sector until you get those sorts of guardrails and that regulatory clarity on things like the AML restrictions, resilience, cybersecurity. Until you have that regulatory clarity, the traditional financial system has a hard time engaging because of … the pervasive regulation to which we're subject." On the recently enacted GENIUS Act legislation, Acting FDIC Chair Travis Hill predicted that the "applications and licensing piece I think for us is going to be pretty straightforward, given that the applicants are going to be institutions that we already supervise."
• Understanding 'Unbanked'. Hill suggested a synergy between efforts to mitigate "debanking" and addressing the unbanked population. The "high-level goal is a banking system that's going to serve all of America," Hill said. He mentioned the FDIC's recent proposal on reputational risk as part of the efforts to remove supervisory barriers to account access.
• AI in Supervision. Over the longer term, "there's a lot of promise for ways that [artificial intelligence] can revolutionize how we supervise things when it comes to things like reviewing long files," Hill said. "I think those are not things we're going to be ready to do in the short term, but they're things we are thinking about over the longer term."

4. Bessent Calls for End to Capital Arbitrage Favoring Private Credit

At the Fed's recent community bank conference, Treasury Secretary Scott Bessent called for an end to the capital arbitrage that favors private credit over banks, with the goal being banks originating loans directly rather than providing financing for private credit. The comments came as the Fed is working to reform the bank capital framework on several levels. Bessent reiterated the need to release the regulatory "straitjacket" on the banking system and expressed concern that private credit is procyclical, exacerbating the constraints of economic downturns by contracting lending amid stress.

• Leveraged Lending. BPI has published multiple notes on misguided (and illegally issued) guidance restricting banks' leveraged lending. This guidance represents an important element of the regulatory straitjacket that Bessent criticizes, as the void of banks in this lending sector has paved the way for private credit to supplant them. To encourage more banks to originate loans rather than merely facilitating private credit lending, rescinding leveraged lending guidance is a significant first step.

5. FDIC's Hill Previews Resolution Reforms

Acting FDIC Chair Travis Hill previewed forthcoming reforms to the FDIC's bank resolution regime in a speech this week. At the heart of such reform efforts: Lessons learned from the 2023 bank failures. The remarks build on Acting Chairman Hill's earlier comments on the FDIC's ongoing efforts to improve resolution and were the most detailed preview yet of changes under consideration at the FDIC.

• Receivership Funding. Hill said the FDIC is developing receivership funding approaches to avoid the high-cost FDIC borrowing from the Federal Reserve during the 2023 bank failures. Specifically, FDIC is engaging with the Federal Financing Bank to implement rapid asset securitization process for failed bank assets. Although the FDIC borrowed from the FFB in 2023, Hill noted in his comments that borrowing did not take place until six months after the failures and resulted in leaving penalty rate borrowing from the Fed outstanding much longer than necessary.
• Resolution Planning Rule. The FDIC plans to issue a proposed rule that would make permanent resolution planning relief the FDIC extended in April 2025. The FAQs temporarily reversed many of the resolution planning requirements that were adopted in 2024 that required banks to focus on a bridge bank strategy in their plans, a resolution strategy that Hill calls "a costly, undesirable outcome" because of the value destruction that typically happens after a bridge bank or conservatorship is created.
• Regulatory Duplication. The FDIC will also consider overlap between the FDIC's standalone bank-level rules and joint Federal Reserve and FDIC Title I resolution plans. BPI recently recommended eliminating standalone bank level resolution plans for banks that submit Title I plans to the Fed and FDIC.
• Marketing Process. The agency plans to be more transparent on its marketing process for failed banks and seek input on how to improve the process, Hill said. The FDIC will aim to accommodate a broader range of transaction types, especially when selling larger and more complex banks, and to explore ways to expand nonbank participation in the process.
• Least-Cost Test Updates. The FDIC plans to consider updates to the "least-cost test" model to expedite analysis of the costs of bid on failed banks. Hill said these changes will allow the FDIC to analyze costs in "hours instead of days" and will enhance the agency's ability to value more complex institutions.

In Case You Missed It

Capital Unlocked: Study Examines Impact of Bank Regulatory Changes

A recent study by Alvarez and Marsal outlines the effects of capital and other regulatory reforms on lending and capital markets capacity. Here are the high-level takeaways:

• Regulatory reforms in the U.S. could "enable banks to release up to 14% of their CET1 capital, unlocking approximately $2.6 trillion in additional asset capacity for lending and capital markets activity."
• In the UK, regulatory changes could release 102 basis points of CET1 capital, "equivalent to c.$0.5 trillion in additional capacity."
• In contrast, Switzerland is seeking to raise capital requirements on its largest bank significantly, which could have global implications considering the Swiss banking sector's role in international financing.
• The EU landscape depends on how "simplification" of the regulatory and supervisory regime is defined and executed, but some senior ECB officials have indicated that capital reduction is not part of the exercise.

Bottom Line. The study highlights the relationship between lower capital requirements and expanded financial intermediation capacity, a connection often undervalued in political discussions of regulatory changes.

OCC Conditionally Approves Erebor Application as Charter Bids Flood In

The OCC this week granted conditional approval to crypto-focused firm Erebor's application for a national bank charter. Notably, Erebor applied for a full-fledged bank charter as opposed to a trust charter. The action comes as a flurry of tech and crypto firms have applied for banking charters of various types, including Ripple, Paxos, Coinbase, Circle and, more recently, the stablecoin arm of payment tech firm Stripe, which applied for a national trust charter from the OCC. Sony's online banking unit has also applied for an OCC national trust charter to set up a U.S. branch that would mint stablecoins and custody crypto assets, according to Law360.

Banking Agencies Rescind Bank Climate-Risk Measure

The Fed, FDIC and OCC on Thursday announced the rescission of principles issued under the Biden administration aimed at overseeing banks' management of climate risk. The agencies indicated that the measure is unnecessary because their oversight of bank safety and soundness already covers management of all material financial risks. "All supervised institutions are expected to consider and appropriately address all material financial risks and should be resilient to a range of risks, including emerging risks," the agencies stated. Fed Governor Christopher Waller said in a statement on the rescission: "Good riddance."

Traversing the Pond: IMF Week Edition

As the IMF and World Bank meetings brought global regulators together in Washington this week, here's a closer look at developments in international banking policy.

• Bailey Addresses G20 Officials. Bank of England Governor Andrew Bailey, in his role as chair of the Financial Stability Board, emphasized the importance of multilateral cooperation and reform implementation amid heightened risks and uncertainty in a recent letter to G20 finance ministers and central bank governors. He urged cooperation and progress on cross-border payments reforms and noted shortfalls in progress on measures addressing crypto financial stability risks. "While jurisdictions have made notable progress implementing the FSB recommendations for crypto-asset activities, gaps remain in addressing financial stability risks and few have finalised regulatory frameworks for global stablecoin arrangements," the letter said.
• FSB Lookback. An interim FSB report issued this week takes stock of reforms implemented over the last 15 years, "including policy measures to address too-big-to-fail, nonbank financial intermediation reforms, OTC derivatives market reforms, Basel III, and recommendations on crypto-asset markets and activities." The report "shows that full, timely and consistent implementation has not been completely achieved. This is despite the active programme of implementation monitoring by the FSB and standard-setting bodies which has raised awareness and highlighted the importance of implementation of agreed reforms."
• IMF Stability Report. The IMF released its regular financial stability report this week, warning of elevated financial stability risks, including those presented by an increasing presence of nonbank financial institutions. The report also flagged risks in the global foreign exchange market and in emerging markets, as well as risks posed by stablecoins, discussed further in the crypto section of this newsletter.
• FSB Crypto and Stablecoin Peer Review Report. The FSB this week published a "peer review" report assessing where various countries stand on implementing the organization's 2023 global framework for crypto-asset activities and global stablecoin arrangements. The review is based on surveys completed by local regulatory authorities. The report finds that despite some progress, implementation remains incomplete, uneven and inconsistent, posing risks to global financial stability.
• Simplification. ECB Vice President Luis de Guindos urged the EU to "critically assess how we can further improve and simplify our regulatory and supervisory framework." At a conference in Brussels, Guindos said: "We are strongly in favor of reducing undue complexity, administrative burden and overlaps, as long as resilience and compliance with international standards are preserved." The remarks come as Europe has been seeking to "simplify" the bank regulatory framework to support economic growth and competitiveness.
• Villeroy Calls for U.S. Cooperation. Banque de France Governor Francois Villeroy de Galhau called this week for enhanced U.S. engagement on issues such as monitoring hedge fund leverage, rapid growth in private credit and stablecoins.

The Crypto Ledger

Here's the latest in crypto.

• Paxos Mistakenly Mints $300 Trillion PYUSD on Ethereum, Citing Tech Error. Stablecoin issuer Paxos accidentally minted $300 trillion in PayPal USD stablecoins on Wednesday, citing a "technical error" as the reason. Paxos "burned," or eliminated, the excess coins shortly afterwards.
• IMF Warns of Stablecoin Risks. Stablecoins were among the key risks to global financial stability flagged in the International Monetary Fund's financial stability report released this week. Continued growth in the assets could have three main financial stability implications, the report said: "(1) weaker economies may face currency substitution and reduced effectiveness of policy tools, (2) bond market structure could change with potential implications on credit disintermediation, and (3) investor runs out of stablecoins may generate forced selling of reserve assets."
• Stablecoin Boom Might Spur Review of Rules, Basel Chair Says. Rapid growth in stablecoins may prompt global policymakers to rethink bank capital standards for crypto assets. Stablecoins are more of a focus for regulators now than they were in 2022 when the capital standards were first being designed, Basel Committee on Banking Supervision Chair Erik Thedeen said this week. "That's one reason why we might need to discuss and evaluate," he said.

Cybersecurity Spotlight

Cybersecurity Q&A with BPI's Heather Hogsett

1. As you look at today's financial services landscape, what do you see as the top cybersecurity priorities banks should be focusing on in the next year or two?

We are living in an era of hyperconnectivity and geopolitical tension where critical infrastructure - including financial institutions - are targets of criminal hackers and malicious nation-states. Being on the front lines defending against these threats requires financial institutions to carefully oversee their use of third parties that are often a weak link in firms' defenses. The growing use of emerging technologies like artificial intelligence and quantum computing also presents challenges. Preparing for the rapid pace of change and opportunity to enhance customer engagement and the delivery of products and services takes significant time and resources to evolve security controls and resiliency plans.

2. From your perspective, what should Congress and policymakers be doing to strengthen our nation's resilience against cyber threats? 

Congress should reauthorize the Cybersecurity Information Sharing Act to ensure financial institutions are protected from liability and public disclosure when sharing cyber threat information. These protections have been invaluable for facilitating communication between private companies and government partners over the last 10 years. Without these authorities, cyber personnel are missing a key tool for combating increasingly sophisticated adversaries.

Another area where Congress can play a role is harmonizing cyber regulations, particularly around incident reporting. Like duplicative cyber exams, overlapping and conflicting government reporting requirements do little to enhance our resiliency and can interfere with critical response efforts. While firms support the value of confidential reporting, it's vital that government requirements be streamlined and strike a balance between the government's need for information and a firm's need to respond and recover.

3. Beyond government and financial institutions, what role should other sectors, such as social media platforms, telecom providers or technology companies, play in combating cybercrime and protecting consumers? 

Much of the cybercrime we see today originates on social media or telecommunications networks where criminals create fake websites impersonating banks or send spoofed text messages and calls to customers. While financial institutions have instituted enhanced fraud protections, consumer education and transaction monitoring, by the time it reaches the bank, it is often too late. To protect consumers requires social media, technology and telecommunications companies to do more to prevent the fraudulent use of their networks.

4. Fraud and scams continue to evolve quickly, often targeting consumers directly. What trends are you seeing in this space, and what approaches have been most effective in reducing risk? 

Americans reported over $16 billion in fraud losses in 2024 - more than double the total just three years earlier - according to the FBI's Internet Crime Complaint Center. Scams increasingly take the form of fake ads, Facebook Marketplace schemes, and online forums or "how-to" content that recruit and train new scammers. They will also spoof text messages and calls to make it look like the customer's financial institution, allowing them to gain the customers' trust and trick them into providing personal information. To protect customers, banks have implemented enhanced security measures, transaction monitoring and customer education. They are also enhancing efforts to share fraud and scam intelligence information with each other and with telecom and social media companies where many of these scams proliferate.

5. Banks are already making significant investments in cybersecurity and fraud prevention. What are some examples of how they are leading in this space, and where do you see opportunities for even greater collaboration? 

Improving cybersecurity and fraud prevention requires close collaboration and information sharing between financial institutions as well as with government and other industries. Financial institutions were the first to create an information sharing and analysis center - the FS-ISAC - in 1999 and have been leading the way ever since. The FS-ISAC facilitates cyber threat intelligence sharing as well as fraud and scam intelligence and serves as a key node in efforts to coordinate with other sectors. Financial institutions also have an active sector coordinating council - the Financial Services Sector Coordinating Council - that coordinates with Treasury, regulators, CISA and other agencies on cybersecurity and critical infrastructure protection. As many of the threats we face are not specific to financial institutions, additional collaboration with other critical infrastructure sectors will further strengthen our defenses and is a key area of focus.

U.S. Bank Launches Digital Assets, Money Movement Team

U.S. Bank this week announced the creation of a new Digital Assets and Money Movement team to "accelerate development of and grow revenue from emerging digital products and services such as stablecoin issuance, cryptocurrency custody, asset tokenization and digital money movement." The team will be led by Jamie Walker, who currently leads the bank's Merchant Payment Services group.