U.S. MSB Daily News
USMSB.com – Acting FDIC Chairman Travis Hill marched up to Capitol Hill on Tuesday and laid out an aggressive overhaul of the nation’s bank watchdog – promising fewer box-checking exams, more focus on real risks, a reset on “debanking,” and a friendlier lane for digital assets and stablecoins.
Testifying before the House Financial Services Committee at a hearing on “Oversight of Prudential Regulators,” Hill said the FDIC is trying to strip away process junk and refocus on what actually threatens a bank’s balance sheet – while still safeguarding deposits and keeping the system from cracking under stress.
‘Stop Sweating the Small Stuff’ Supervision
Hill said the FDIC and the OCC have dropped a joint proposal that finally spells out what an “unsafe or unsound practice” really is – and draws a sharper line between serious findings and softer “observations” in exams. The goal: kill the creep of minor process nitpicks being treated like capital-level crises.
To keep examiners honest, Hill wants a new Office of Supervisory Appeals – an in-house but independent body staffed by seasoned outsiders to hear banks’ appeals of material supervisory determinations. That’s a clear shot at the long-standing complaint that “appealing the exam” means “appealing to the same people who wrote it.”
Other moves aimed at lowering the blood pressure of community banks:
- CAMELS reset: The FDIC and its FFIEC partners are reviewing the CAMELS rating system to stress material financial risk and dial down obsession with paperwork that has little to do with solvency.
- Slimmer exams: Shorter reports, fewer documentation demands, and more risk-focused procedures – especially on AML and IT – for well-rated community banks.
- Less exam ‘camping’: The FDIC raised the threshold for continuous, always-on supervision from $10 billion to $30 billion in assets. Banks between $10B and $30B get a hybrid approach with fewer reviews and fewer embedded exam teams.
- Longer compliance cycles: Top-rated banks under $3 billion will see joint consumer-compliance/CRA exams every five to six years, with a mid-cycle check-in, instead of constant full-scope reviews.
For MSBs, fintech partners, and their bank counterparties, this shift could mean more capacity on the bank side to focus on actual risk and innovation – and less time fighting over procedural foot faults.
Capital: Looser Leverage, Tighter Logic
On capital, Hill is trying to thread the needle: keep banks resilient, but stop rules from choking off low-risk activity.
- Big-bank leverage fix: A new joint rule tweaks the enhanced Supplementary Leverage Ratio (eSLR) so it acts as a backstop, not a daily straitjacket. The fix is meant to free up balance sheets at GSIBs for low-risk but critical activities like Treasury market-making and repo.
- Community bank relief: A new proposal would cut the Community Bank Leverage Ratio (CBLR) from 9% to 8% and double the grace period from two to four quarters (with limits so banks can’t camp there forever). The aim: widen eligibility, coax more community banks into the simple leverage framework, and still keep standards “rigorous.”
- Basel modernization: Hill says the FDIC is working with the Fed and OCC to implement the 2017 Basel agreement and update risk-based capital so it balances economic growth with shock resistance.
For MSB-facing institutions, more capital flexibility – especially around low-risk assets and simple leverage options – could translate into more credit, more correspondent capacity, and better execution in payments and liquidity markets.
Debanking Crackdown: Reputation Risk Gets the Boot
The politics of “debanking” took center stage too. Hill pointed to an August 2025 executive order from President Trump that says no American should lose access to financial services over protected beliefs or political views.
The FDIC and OCC responded with a proposed rule that would:
- Ban examiners from criticizing banks solely on “reputational risk.”
- Prohibit regulators from pushing banks to close accounts based on political, social, religious, or similar views.
The FDIC has already pulled data from large banks, reviewed policies, combed its complaint database, and surveyed examiners to see how account-closure decisions are really being made.
For MSBs – especially those serving controversial or higher-risk but legal sectors – this could be a lifeline. If finalized and enforced, the rule would make it harder for regulators to quietly pressure banks into cutting ties with perfectly lawful clients under the vague banner of “reputational risk.”
Digital Assets & Stablecoins: From ‘Nope’ to ‘Let’s Talk’
In a sharp pivot from the chill of recent years, Hill said the FDIC has taken a “more open-minded” stance toward banks offering digital asset products and services, as long as they’re run safely and soundly.
Key steps:
- No more pre-clearance wall: The FDIC scrapped its prior requirement that banks pre-notify the agency before engaging in digital asset activity – a hurdle that had kept many institutions on the sidelines.
- Crypto joint statements withdrawn: The agency walked away from interagency statements that suggested using public distributed ledgers was basically incompatible with safe banking.
Then came the big one: the GENIUS Act, signed in July 2025, setting up a federal framework for payment stablecoin issuers. The FDIC now has its marching orders:
- License and supervise subsidiaries of FDIC-supervised banks that issue payment stablecoins.
- Write rules on capital, liquidity, and reserve assets for those issuers.
- Drop a proposed rule on the application framework this month and a prudential-requirements proposal early next year.
On top of that, the FDIC is weighing recommendations from the President’s Working Group on tokenization and is drafting guidance to clarify the regulatory status of tokenized deposits.
Translation for MSBs and digital-asset players: the bank-regulated stablecoin lane is about to get lines painted on it. Expect more clarity on who can issue, what reserves must look like, and how tokenized deposits will be treated in the regulatory stack.
BSA/AML: From Checkbox to Outcomes
Hill also promised a makeover of BSA/AML oversight that could dramatically change how banks – and their MSB partners – build compliance programs.
- The FDIC has already rolled out simplified exam procedures for low-complexity banks.
- Along with Treasury, FinCEN, and other regulators, the FDIC is drafting a sweeping NPR to reorient AML/CFT rules around outcomes, not just technical compliance.
The plan: push institutions to prioritize high-value reporting that hits national AML/CFT priorities, and free up resources from low-yield filings.
On customer identification, Hill highlighted two big shifts aimed squarely at bank–fintech and bank–MSB relationships:
- TIN flexibility: Banks can collect only the last four digits of a taxpayer ID and rely on trusted third parties to verify the full number, under a new exemption.
- Pre-populated CIP data: FDIC-supervised banks can now use pre-populated customer information – from existing accounts or third-party relationships – to meet CIP requirements for new accounts.
For onboarding MSBs, fintechs, and high-volume retail customers, those changes could mean faster KYC flows, better use of shared data, and fewer redundant document chases – while still keeping regulators satisfied.
Climate Guidance Out, Culture Clean-Up In
In a move that will please some and rile others, Hill said the FDIC has stopped elevating climate-related financial risk above other risks. The agency:
- Dissolved its internal climate-risk working group.
- Jointly withdrew interagency climate-risk guidance for large banks.
- Pulled out of the Network for Greening the Financial System, saying its work sits outside the FDIC’s mandate.
Inside the agency, Hill admitted the FDIC has its own problems – and vowed to fix them. After a wave of reports about harassment and misconduct, he said:
- Two new offices now handle complaints and discipline.
- New anti-harassment training is in place.
- Leadership turnover has been “significant,” with a clear expectation for civility and professionalism.
- Employees have confidential and anonymous channels to report problems, backed by better tracking of complaints.
What’s Next for Banks, MSBs, and Compliance Teams
Hill’s message to Congress was simple: the rulebook is being rewritten – but the safety net stays.
For banks serving MSBs, fintechs, and cross-border payment players, the testimony signals:
- More predictable, appealable supervision and fewer nitpicks.
- A clearer runway for digital assets, tokenization, and bank-issued stablecoins – with tough but knowable rules.
- A potential shift in BSA/AML from “check every box” to “hit the right targets.”
- Less regulatory space for politically driven debanking.
It’s still testimony, not final law – but for the money services and compliance crowd, Hill just sketched out the playbook that could define the next era of U.S. bank regulation.
U.S. MSB Daily News
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