The top banking regulators appeared before the House Financial Services Committee today, where they said that a decision on whether to press forward on Community Reinvestment Act reform may come soon and that merger application reviews probably should consider competition from the nonbank sector.
During an oversight hearing, Federal Reserve Vice Chair for Supervision Michelle Bowman and the heads of the FDIC, Office of the Comptroller of the Currency and National Credit Union Administration fielded questions from lawmakers on a range of issues, from CRA implementation to President Trump’s recent executive order on immigration and bank account access.
Community Reinvestment Act
FDIC Chairman Travis Hill said regulators expect to soon decide whether to continue to operate under the 1995 Community Reinvestment Act rule or consider options for a new approach moving forward.
The banking agencies last year issued a joint proposal to rescind the 2023 CRA rule and instead continue to operate under the 1995 framework. They have yet to finalize the proposal, but in response to questions from Rep. Joyce Beatty (D‑Ohio), Hill noted the 2023 rule has not taken effect and remains subject to ongoing litigation challenging the agencies’ statutory authority.
“We have been evaluating a range of possible options for next steps, which includes both finalizing the proposal from last summer, but also considering other options for proactive reforms,” Hill said. “That is something we continue to consider and are likely to decide on a path in the near future.”
Stablecoins
Banking agencies are currently working on rulemaking to implement the Genius Act, which created a regulatory framework for payment stablecoins. The law bans payment stablecoin issuers from paying interest or yield on payment stablecoins. The American Bankers Association and others have urged agencies to ensure the ban is upheld in their rulemaking. Rep. Brad Sherman (D-Calif.) reminded regulators of that obligation in his remarks.
“The smartest, or at least the best-paid lawyers in the country, are being paid to try and evade that requirement, and I am counting on you to write regulations that withstand that,” Sherman said.
Bank mergers
Rep. Scott Fitzgerald (R-Wis.) asked whether the current bank merger application was too narrow in that it did not consider nonbank competition, which has grown significantly in recent years. Bowman and Comptroller of the Currency Jonathan Gould agreed that it would be helpful to update their merger analysis to include the effects of nonbanks.
“Deposits can be a poor proxy of market power, particularly given the fact that many banks do compete with nonbanks across a range of services,” Gould said, adding that the OCC submitted a letter to the Department of Justice making that point when the department was reevaluating its 1995 merger guidelines.
Immigration order
Trump last month issued an executive order directing regulators to provide guidance to financial institutions on identifying suspicious activity allegedly tied to individuals in the country illegally. Gould faced criticism from both sides of the aisle over how his agency would implement the order.
Rep. Sean Casten (D-Ill.) pressed Gould on whether the OCC had conducted any research on whether extending credit to immigrants poses a material risk to financial institutions, which the comptroller declined to answer. Rep. Maria Salazar (R-Fla.) said she worried the order would be expensive and burdensome for banks to implement, and that it risked turning Gould into a Customs and Border Patrol “agent.”
“I think the president’s [executive order] is a common-sense reaction to well-understood and documented concerns that we are seeing in terms of fraud, money laundering, etc.,” Gould said. “From my perspective, as a safety and soundness supervisor, I want to make sure that the banks we supervise understand the nature of the financial risk that their customers may pose.”
