The top banking regulators today appeared before the Senate Banking Committee, providing updates on an upcoming reproposal of capital requirements for large banks and efforts to implement new regulations for stablecoin issuers.
Among the issues covered at the hearing, Federal Reserve Vice Chair for Supervision Michelle Bowman said regulators plan to repropose the Basel III endgame capital requirements by the end of March, although she acknowledged that deadline may need some wiggle room.
“My approach is to calibrate the new framework from the bottom up, rather than reverse engineer changes to achieve predetermined or preconceived outcomes to capital requirements,” Bowman said during her opening remarks. “These changes will modernize capital requirements to support market liquidity, affordable homeownership, and safety and soundness.”
Bowman reiterated her previous criticism that the treatment of mortgage loans and mortgage servicing assets under the U.S. standardized approach has resulted in banks reducing participation in mortgage lending activity. “We are considering approaches to differentiate the riskiness of mortgages in ways that will benefit financial institutions of all sizes, not just the largest banks,” she said.
Deposit flight concerns
The day before the hearing, the Office of the Comptroller of the Currency released a proposed rule outlining how it would implement the Genius Act’s regulatory framework for stablecoins. Bankers and others have expressed concern that a potential loophole in the law’s prohibition on payment of interest on stablecoins would lead to deposit flight from community banks.
When pressed about that concern, Comptroller Jonathan Gould said there have been studies “showing a range of outcomes” around deposit flight.
“I cannot predict what would happen, but what I can say with some certainty is that any significant deposit flight or material deposit flight would not go unnoticed, certainly not by me, by you and others elected officials of this committee,” Gould said. “And if there were to be significant deposit flight, I believe that I and other federal bank agency regulators and I would take steps since that would implicate the safety, soundness and construction of the banking system.”
