U.S. MSB Daily News
USMSB.com – Capitol Hill gave the nation’s bank cops an unmistakable message this week: Your rulebook is stuck in the ’90s — and nonbanks are eating your lunch.
At a House Financial Services Committee hearing on Dec. 2, top regulators from the Federal Reserve, FDIC, Office of the Comptroller of the Currency (OCC) and National Credit Union Administration (NCUA) admitted they’re racing to rewrite core rules as fintechs, nonbank lenders and stablecoin issuers grab more of the market.
Nonbanks on offense, banks boxed in
Lawmakers pressed regulators on a core tension: regulated banks carry heavy capital and liquidity burdens, while nonbanks and other shadow players expand with far lighter oversight.
Fed Vice Chair for Supervision Michelle Bowman warned that nonbank financial institutions now hold a “significant share of lending,” offering “strong competition to regulated banks without facing the same capital, liquidity, and other prudential standards.”
Her prescription: give banks regulatory clarity so they can compete in payments, digital assets and new tech without tripping outdated rules.
FDIC Acting Chairman Travis Hill came at it from another angle, revealing that the FDIC is overhauling its failed-bank bidding process to let nonbank firms pre-qualify and bid in resolutions starting with a pilot in early 2026 — a major opening for private equity, fintechs and other outsiders.
NCUA Chairman Kyle Hauptman said credit unions are feeling the same tech squeeze and must respond by “leveraging artificial intelligence and cryptocurrencies” while zeroing in on “measurable and material risks.”
OCC chief Jonathan Gould told lawmakers that innovation — including AI and payment stablecoins — has to be baked directly into supervision, not bolted on as an afterthought.
“Sound and resilient” — but under pressure
For all the anxiety over nonbanks, regulators painted a picture of a fundamentally healthy system.
Bowman said the banking system remains “sound and resilient,” boasting strong capital ratios and “significant liquidity buffers.” Loan performance has improved and profitability is robust across most categories.
Hauptman reported that as of mid-2025, more than 81% of federally insured credit unions carry a top-tier CAMELS rating of 1 or 2, with rising net worth and solid earnings.
Hill described internal FDIC reforms aimed at faster, more focused exams and capital rules that support low-risk, system-critical activities, rather than discouraging them.
Tech, AI and stablecoins crash into the rulebook
One theme united all four agencies: technology is no longer a side issue — it’s driving the next wave of regulation.
Bowman said supervisors must give banks “clarity in treatment on digital assets” and real-time feedback on new tech use cases so institutions can experiment without stepping over invisible lines.
Gould said the OCC is using rulemaking to weave AI and data analytics into both bank supervision and the agency’s own operations, promising “more efficient supervision and lower assessment fees” as a result.
Hauptman gave the most concrete example: an NCUA AI resources portal that walks credit unions through implementation, risk management, cybersecurity and data protection — framing regulation as a “support structure, not a barrier.”
Witnesses also flagged the coming GENIUS Act stablecoin framework. Gould said the OCC is drafting rules to “balance innovation with prudence” for payment stablecoins, a space where nonbanks and Big Tech are racing ahead.
New enforcement lines: defining “unsafe or unsound”
In unusually detailed testimony, regulators laid out a sweeping rewrite of enforcement and exam standards:
- Hill said the FDIC and OCC have jointly proposed a rule that would define “unsafe or unsound practice” and create uniform standards for “matters requiring attention” and other supervisory observations. The goal: move enforcement into a clearer legal box and rein in examiner discretion to material safety-and-soundness risks, not mere process nitpicks.
- Bowman said the Fed is pursuing its own rule to clarify enforcement based on unsafe or unsound practices and MRAs, plus separate rulemakings on stress-test disclosures and the supplementary leverage ratio, to avoid capital rules that choke off low-risk banking activities.
- Hill added that the FDIC will roll out a proposed rule this month to set a formal application framework, followed by prudential-requirements proposals early next year.
The common thread: regulators say they want fewer gray areas, more consistency across agencies, and less “regulation by exam comment.”
BSA thresholds, fraud and the cost of compliance
Lawmakers used the session to vent about compliance burdens that small institutions say are crushing them.
Rep. Barry Loudermilk (R-Ga.) told Hill that local businesses call government regulation their biggest cost, zeroing in on Bank Secrecy Act reporting thresholds that haven’t moved in decades. Hill agreed the number of reports “is extremely large” and said “taking a close look at this makes a lot of sense.”
On fraud, Rep. Joyce Beatty (D-Ohio) warned that check fraud and related scams are the “number one concern” she’s hearing from banks and credit unions. Regulators pointed to an ongoing request for comment on check-fraud issues, with Bowman highlighting account opening as a critical choke point. Hauptman argued that public blockchains can help “eliminate some of these issues” in other payment channels.
What regulators want from Congress
The witnesses didn’t leave empty-handed — they came with asks:
- Bowman urged Congress to update statutory thresholds that pull community banks into rules meant for giants, arguing that inflation has dragged smaller institutions into big-bank regimes never intended for them.
- Hill asked lawmakers to back reforms that keep supervisory criticism anchored to safety and soundness, not “reputational or political” considerations.
- Hauptman called for regulatory relief that encourages innovation at credit unions while preserving their member-owned mission.
Why this matters for MSBs and nonbanks
For money services businesses, fintechs and other nonbanks, the message from Capitol Hill is blunt:
- The days of sprinting ahead under lighter rules may be numbered as agencies push to level capital and liquidity standards for nonbanks and stablecoin issuers.
- At the same time, regulators are openly courting nonbank participation in failed-bank resolutions and new tech use cases, signaling new entry points for well-capitalized MSBs and infrastructure providers.
- For banks and credit unions, the hearing underscored a coming wave of rules on AI, digital assets, enforcement standards and capital — with tailoring and threshold relief on the table, but not guaranteed.
Bottom line: nonbanks are gaining ground, and prudential regulators are scrambling to prove their rulebooks can keep up — without strangling the very innovation they now say they need.
Source: This article is based on reporting from PYMNTS, official testimony before the House Financial Services Committee, and public statements from the Federal Reserve, FDIC, OCC, and NCUA.
U.S. MSB Daily News
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