Bank regulators testify in House: Live coverage

Rep. Sylvia Garcia, D-Texas, called out the Consumer Financial Protection Bureau and its acting director, Office of Management and Budget Director Russell Vought, for failing to appear before Congress this year, as is required by statute.

In the CFPB's absence, Garcia asked Federal Reserve Vice Chair for Supervision Michelle Bowman, Comptroller of the Currency Jonathan Gould and acting Federal Deposit Insurance Corp. chair Travis Hill about whether they are supervising and examining the largest banks to ensure compliance with federal consumer protection laws.

In response, Bowman said the central bank is in charge of a "narrow set of consumer compliance regulations."

"We have responsibilities for a narrow set of consumer compliance regulations for all sizes of institutions that are state member banks," she said. "I believe the other regulators have the responsibility in that narrow context as well." Gould said that the OCC does not have supervision authority, while Chairman Travis Hill stated that the FDIC has authority over "certain consumer protection laws" that it continues to fulfill.

Rep. Dan Meuser, R- Pa., highlighted a report issued Monday by the House Financial Services Committee's republican majority investigating what they say were unjust restriction of banking services to politically disfavored industries like crypto. 

The report alleges that the Biden administration intentionally muddled the regulatory standards and added onerous red-tape that discouraged banks from serving digital asset firms. When asked by Meuser for his take on identifying debanking, Gould discussed how the agency is investigating whether some banks had monitored news about potential clients to calculate the risk they could pose to a bank's reputation, which he says is inappropriate in some cases. 

"Overreliance on negative news searches — which is sometimes a feature of reputation risk, could … be problematic, as well as categorical prohibitions on performing or providing financial services and products to lawful business activities," Meuser said.

Citing sources like Marc Andreessen's now-infamous interview with Joe Rogan, the staff report alleges that roughly 30 entities or individuals were unjustly denied services. It's not clear, however, that discouraging crypto partnerships constitutes illegal interference; banking lawyers say banks are not obligated to serve any particular customer, with exceptions for unlawful denials to protected classes.

The report critiques the administration's use of AML justifications for keeping crypto at arms-length, quoting a Treasury document that states "the use of virtual assets for money laundering remains far below the scale of fiat currency." Another document cited in the report, a speech by former Treasury Deputy Secretary Wally Adeyemo, lays out the Biden administration's growing concerns with cryptocurrencies being used to illicit activity. 

"While these actors today only use virtual assets for a fraction of their illicit activity, we know in other areas, illicit actors almost completely rely on virtual currencies," Adeyemo said last year. "Treasury's Financial Crimes Enforcement Network found, based on BSA reporting, that more than $1 billion of ransomware payments were made exclusively using cryptocurrency in 2023. This not only has an impact on our national security but also on our economy."

In a statement Monday responding to the report, OCC officials said they are continuing to investigate whether large banks improperly "debanked" digital-asset firms or other lawful businesses.

Rep. Bill Foster, D-Ill., raised concerns that interest-bearing stablecoins could drive significant deposit migration away from community banks, saying the crypto industry has already found ways to circumvent a GENIUS Act prohibition on paying interest. 

Foster asked the regulators to address the bankers' concerns, but his time expired before they could answer. Foster said the issue was a major point of concern at a recent community banking conference he attended, adding that the emergence of interest-bearing stablecoins is akin to the nascent emergence of narrow banks in the last decade. 

"One thing that came out actually with small community banks is the worry that interest-paying stablecoins would have a potential [to pull] deposits" from the banking sector, Foster said. "There are some estimates that predict [as much as] six trillion dollars. I just heard about it uniformly the small community bankers were terrified and angry about the threat."

Acting FDIC Chairman Travis Hill only briefly addressed the culture scandal at his agency, a quiet coda of what had been a hot-button political issue that briefly reared its head during Hill's confirmation scandal in the Senate. 

Hill, who is likely to receive his final full Senate vote to become the confirmed chairman of the FDIC this week, fielded questions from Republican lawmakers during his confirmation hearing to lead the agency. Sen. John Kennedy, R-La., said he might withhold his support for Hill over the issue. Kennedy has since said he is assured by Hill that reform will continue apace. 

But three hours into the oversight hearing in the House Financial Services Committee hearing, only one lawmaker — Rep. Bill Huizenga, R-Mich. — asked about the issue, to which Hill outlined the progress he said the FDIC has made. 

"There's been significant turnover in leadership at the agency," Hill said. "We have an entirely new board, and about half of direct reports to the chair have turned over this year. We've replaced a large number of managers across the agency. We have prioritized accountability, which I think was really the key root cause of the problems, which is that there were many cases where either people didn't report things because they didn't have confidence in the in the process, or they did report things, and people were paid off with settlements, and the wrongdoers didn't have accountability."