Questions for Governor Bowman on Bank Supervision and Regulation

Not really the main topic of discussion this month, but nevertheless

Tomorrow the Senate Banking Committee will hold a hearing to consider the nomination of Michelle Bowman to be the Federal Reserve Board’s Vice Chair for Supervision. This post sets out some questions for Governor Bowman regarding bank supervision and regulation, acknowledging as always — and even more so in light of current events — that these are not necessarily the most important questions, nor are they necessarily the ones most likely to be asked.

Structure of the Board of Governors and the VCS Role

1. In 2023 remarks, you said that “independent decision making in monetary policy is vital, and research shows that it leads to better policy outcomes in the long run.” You went on to emphasize that independence in banking supervision and regulation, though less discussed, is also important because the Board’s “independence in bank regulation also provides stability and consistency to regulated institutions.”

• Treasury Secretary Bessent has said that he will seek to ensure “financial regulators [are] singing in unison from the same song sheet” and that, through “coordination via Treasury,” financial regulators should “work in parallel with each other and industry.”

  • Are Secretary Bessent’s plans consistent with your 2023 remarks about the value of independence in bank regulation?

• Under a February executive order, independent regulatory agency chairs must “regularly consult with and coordinate policies and priorities with the directors of OMB, the White House Domestic Policy Council, and the White House National Economic Council.” While the FOMC’s conduct of monetary is carved out of the scope of the order, the Board’s supervisory and regulatory functions are explicitly in scope.

  • Is this line between monetary policy and supervisory/regulatory policy one that can easily be drawn?

  • If not, does that imperil the “better policy outcomes in the long run” that you have said come from independence in monetary policy decision making?

• Stepping back from questions about the current Administration’s approach and considering the issue at a higher level, do you think it is helpful or harmful for the independence of bank regulation to have a Vice Chair for Supervision that must be nominated by the President and confirmed by the Senate?

• With respect to your comments about the importance of stability and consistency in bank supervision, is this a concern to be invoked only in situations where the intensity of supervision increases relative to some baseline? Or should we be equally concerned about stability and consistency when the intensity of supervision decreases relative to that baseline?

  • Stability relative to a baseline sounds like a pretty good idea, but who should get to set the baseline?

2. As you know, in 2015 Congress passed a law requiring that at least one member of the Board of Governors have “demonstrated primary experience working in or supervising community banks.” You were the first, and so far only, person to hold that role. In a speech in October 2024, you called for the role of Governor with community banking experience to be given a “more formal structure,” including “dedicated responsibility over the supervision and regulation of community banks.”

• Does this imply that the Vice Chair for Supervision role and the role of Governor with community banking experience should be kept separate?

3. Chair Powell has previously said that he wants a capital rules package “that has broad support on the Board.” Asked to clarify, he explained that broad support means “broad support.”

• What do you understand Chair Powell’s broad support standard to mean? Do you think this is a good standard?

• Under the law creating the Vice Chair for Supervision position, one of your roles would be to “develop policy recommendations for the Board regarding supervision and regulation of depository institution holding companies and other financial firms supervised by the Board.” Is the broad support standard something you believe you would need to take into account in developing such policy recommendations?

4. When then-Vice Chair for Supervision Barr announced his intention to step down as Vice Chair for Supervision, the Board said that it “does not intend to take up any major rulemakings” until a new Vice Chair for Supervision was confirmed.

• Given the Senate calendar, it may be a few weeks or more until you are confirmed. So in the meantime, what is your understanding of what the Board’s statement means by “major rulemakings”?

• Obviously, I hope it does not get to this point but just to check: how, if at all, would this intention not to take up major rulemakings apply factor in to the Board’s consideration of any actions necessary to address the current market turmoil?

5. Although not yet confirmed as Vice Chair for Supervision, you were recently made the Chair of the Board’s Committee on Supervision and Regulation.

• What actions have you taken in that capacity since becoming Chair of that Committee?

• In 2021 when Governor Quarles’s term as Vice Chair for Supervision ended, the Board said the Committee on Supervision and Regulation would operate “on an unchaired basis” until a new Vice Chair for Supervision was in place. Do you know why a different approach was taken this time around?

6. According to an article in Capitol Account, at a conference in November 2024 you said that after Vice Chair for Supervision Quarles left the Board, “there came a time” when you “no longer had access to information” about the Board’s supervisory activities. As a result, you said you had to go to state regulators to get answers to your questions about how the Board was supervising state member banks.

• Could you say more about what specifically happened in terms of your access to information? What sort of information did you ask for, but not receive?

• If you become Vice Chair for Supervision, what practices would you intend to follow if other Governors ask for information regarding the Board’s supervisory activities?

• Chair Powell told Congress last year¹ that “[a]ny member of the Board is free to discuss any Board-related matters with Board staff.” Has that been your experience?

7. Let’s say you are confirmed but that by 2026 or 2027 President Trump decides he doesn’t like how you are carrying out your role as Vice Chair for Supervision. Or say that for some other reason, or for no reason at all, President Trump just prefers someone else to have the role.

• Does the President have the authority to demote you from the role of Vice Chair for Supervision?

Approach to Supervision

8. You have said that “regulation and supervision should serve a legitimate prudential purpose, like promoting safety and soundness, or reducing financial stability risk.”

• Can you give an example of regulatory or supervisory actions that, in your view, do not serve a legitimate prudential purpose? What makes those purposes illegitimate?

9. You have also said that the Board needs to ensure that examiners focus on “core risks and are not distracted by novel activity or concepts.”

• Can you give an example of a time when supervisors became distracted by novel activity or concepts?

• By which standards should the public evaluate whether the Board has become “distracted” by a novel activity or concept?

  • How should we distinguish this from a situation where the Board is devoting appropriate (even if more than normal) attention to an activity or concept, perhaps in part because it is novel?

• There has been a lot of attention recently on prior notice or prior supervisory non-objection processes in relation to crypto-related activities. When, if ever, is it appropriate to require a prior notice or non-objection process before a bank or holding company may engage in a permissible activity?

10. In a speech earlier this year, you criticized an approach to supervision in which “changes in supervisory expectations often arise in the course of an ongoing examination.”

• What steps would you take as Vice Chair for Supervision to address this issue?

• Imagine a scenario where, despite your efforts, changes in supervisory expectations continue to occur in the middle of exams.

  • What appeals process or other recourse should be available for a bank in that situation?

  • Who should get to decide such appeals?

11. Vice Chair for Supervision Barr’s cover letter accompanying his review of the supervision of Silicon Valley Bank argued that under Vice Chair for Supervision Quarles there was a “shift in the stance of supervisory policy” that “promot[ed] a less assertive supervisory approach.” The review itself elaborated that while there was “no formal or specific policy” staff could point to regarding changes in expectations and practices, “internal discussions and observed behavior” led staff to believe there had been a “shift in culture and expectations.”

In one of your own speeches, you discussed how culture “plays a significant role in how well bank regulators pursue their statutory objectives and the manner in which they perform the related mission.” You went on to ask whether regulators have “created a culture of accountability for leaders and employees, where shortcomings can be fairly identified and actions can be taken to remediate problems...”

• How would you assess the Board’s current supervisory culture? Do you believe any changes to that culture are necessary?

12. The question above was about intentional changes one might try to make to the existing supervisory culture, but unintentional changes might matter as well. For example, the implication in Vice Chair for Supervision Barr’s report is that under Vice Chair for Supervision Quarles supervisors perceived that they were expected to be less assertive, and then in fact became less assertive.

• Vice Chair for Supervision Barr’s conclusions are subject to debate, but taking it as true that, at least in theory, efforts to focus supervisors on core risks could have unintended consequences for supervisory culture, is there anything you plan to do to avoid this becoming an unintended result of changes you make to supervision?

13. In April 2019, you gave a speech to the Conference of State Bank Supervisors about fostering closer supervisory communication between the Board and state banking regulators. In that context, you noted that “improving communication doesn’t necessarily mean that the Federal Reserve and CSBS members will always agree. We won’t, and perhaps we shouldn’t. A diversity of views can be a strength.” A few years later, in multiple speeches in 2024, you remarked that “one of the concerning trends in 2023 were reports, including from state banking regulators, that some federal supervisory actions were excessive, considering the risks posed by some smaller institutions.”

• Is this an example of the “healthy give and take” you noted in your 2019 remarks? If not, what made this particular disagreement less-than-healthy?

• Perhaps this was overreading it, but I got the sense from your 2024 speeches that you felt the state banking regulators, at least this time around, had the better view of things. Was that in fact your view? If so, could you explain why?

14. In November 2018, shortly before you joined the Board of Governors, the Board adopted a new ratings system for large financial institutions. The ratings system took effect in February 2019, and the first ratings were assigned under the system in early 2020.

• Five years in, how do you think the LFI rating system is working? Would you make any changes to it?

15. There has been a fair amount of public comment on the fact that in the Board’s most recent Supervision and Regulation Report the banking system is assessed as “sound and resilient overall” even though according to the LFI rating system two-thirds of LFIs are in unsatisfactory condition. You yourself commented recently on this “odd mismatch.” But there is another perhaps odd thing in the same section of the report: While only about 33% of LFIs are in satisfactory condition, 94% of community and regional banks or holding companies supervised by the Board are in satisfactory condition.

• Granting that supervisory expectations should be different for banks of different sizes, does this sharp divergence in satisfactory ratings make sense to you? What do you think is driving the difference?

16. In May 2024 the Board announced it had denied a petition asking the Board to revise the CAMELS ratings system and make other related changes. You issued a statement regarding the denial of the petition, not directly saying you would have granted it, but calling for “more thorough analysis of the issues raised in the request as it relates to the effectiveness and use of the CAMELS ratings framework.”

• Is this thorough analysis of the effectiveness and use of CAMELS ratings something you intend to pursue as Vice Chair for Supervision?

Rulemaking and Related Considerations

17. Section 165 of the Dodd-Frank Act says that the Board when applying enhanced prudential standards “shall” differentiate between firms on an individual basis or by category. At a Senate Banking Committee hearing last year, Senator Britt asked Chair Powell whether Section 165’s tailoring requirement applied to the proposed long-term debt rules. Chair Powell responded, “I think it applies to everything.”

• What do you understand Chair Powell to mean when he said Section 165 applies to “everything”?

• Do you agree with Chair Powell? Are there any rules to which Section 165 would not apply?

18. In a June 2023 speech you commented on deviations between jurisdictions in their approaches to implementing global capital rules. You noted that some jurisdictions appeared set to deviate in order to “adjust to local market conditions and for other reasons, often by including extended phase-in periods or reducing the size of capital increases” and warned of the “detrimental consequences” that could result “if international capital standards present substantial variability across jurisdictions.”

• These comments came in the context of comparing “gold-plated” standards in the United States to standards in other jurisdictions, but would your warning about detrimental consequences of substantial variation apply equally to a scenario in which standards in the United States substantially deviate downwards from those standards adopted internationally? If not, why not?

• Moving beyond the capital rules and thinking more generally about any rules the Board might adopt, what relative weight do you assign to the potentially competing priorities of, on the one hand, implementing consistent international standards and, on the other hand, adopting standards that make sense for the United States banking system?

19. In a 2024 Government Accountability Office report, the GAO found that the Board’s “policies for reviewing the effects of proposed rules … do not incorporate certain leading practices, such as systematically assessing benefits and costs and fully documenting the analysis.” In response to this finding, the Board’s General Counsel wrote that the Board “agrees it should adopt more formal policies and procedures to ensure that its ongoing regulatory analysis continues to align with leading practices in the future.” Without giving a timeline for completion, the General Counsel further explained that the Board had “commenced work to determine how best to implement [GAO’s] recommendations.”

• Has the Board now determined the changes it will make to enhance its approach to cost benefit analysis? If so, what are those changes?

• Are there any additional changes that you would make to the Board’s approach to cost-benefit analysis? For example, what processes do you believe the Board should follow in conducting and publishing cost-benefit analyses in relation to a revised Basel Endgame proposal?

20. You have said that in making regulatory proposals it is “imperative” that the Board “thoroughly understand the unintended consequences of our proposals and acknowledge the likely outcomes, including the balance of costs and benefits.”

• Does this imperative apply equally to proposals that are, to use an imperfect word, deregulatory, such as changes to thresholds for the application of certain regulations?

• Is there any tension between the need to conduct rigorous cost-benefit analysis and the Board’s December 2024 promise that it would “soon” be seeking public comment on “significant changes” to the stress testing framework?

  • What sort of cost-benefit analysis, quantitative impact studies, etc. would you expect to see in connection with these proposed “significant changes”?

21. In a short statement in July 2022, you criticized the Board and the FDIC for failing to meet deadlines the agencies had set for themselves for reviewing resolution plans — an entirely fair criticism. But there are other areas where the Board has also consistently failed to meet statutory and regulatory deadlines. A far from comprehensive list of examples:

• The Board, FDIC and OCC are required by law to adopt source of strength regulations, but approaching fifteen years later the agencies have not even issued proposed rules. The fact that the agencies have not adopted source of strength rules has been highlighted by the bankruptcy estate of Silicon Valley Bank’s former holding company in litigation with the FDIC.²

  • What would you do as Vice for Chair Supervision to ensure the Board finally meets its statutory obligation to adopt source of strength rules?

• The Board and five other agencies are also required by law to adopt regulations or guidelines to prohibit certain executive compensation arrangements, but despite a few attempts the agencies have not been able to reach consensus on final rules.

  • In testimony in May 2024, Vice Chair for Supervision Barr said that the Board believed that “we need to conduct some further analysis before deciding what steps to take.” Similarly, in a letter to the GAO dated December 4, 2024, the Director of the Board’s Division of Supervision and Regulation wrote that the Board is “focused on conducting” an “updated analysis” of this issue to “reflect current banking conditions and practices.”

    • What is the status of this updated analysis?

• Dodd-Frank amended Sections 23A and 23B of the Federal Reserve Act, but as the Board acknowledged in a 2021 FAQ “Regulation W has not yet been revised” to reflect these amendments. (There have been no further updates since then.)

  • In a February 2025 speech, you noted rules governing transactions with affiliates as one of several areas where a comprehensive review and update was an “imperative.” Based on public statements from Board officials, updates to Reg W and some of the Board’s other “ancient regulations” have been in the works at the staff level for some time,³ but have not been able to make it to the Board for a vote.

    • What would you do as Vice Chair for Supervision to ensure these rules finally get updated?

• Section 25A of the Federal Reserve Act requires the Board, “at least once every five years,” to review and revise its rules governing international banking under the Edge Act “in light of prevailing economic conditions and banking practices.” But one has to go back to 2001 to find a comprehensive public effort from the Board to comply with this requirement.

  • Is Regulation K on your list of regulations that it is “imperative” that the Board update and simplify?

  • Incidentally, Section 25A of the Federal Reserve Act says that one of its purposes is to “facilitate and stimulate the export of United States goods, wares, merchandise, commodities, and services to achieve a sound United States international trade position.”

    • How is that going?

• Under the Framework for Implementing the Countercyclical Capital Buffer adopted by the Board in 2016, the Board has said it “expects to consider at least once per year” the level of the U.S. CCyB. The last time the Board took a recorded vote on the CCyB was December 2020.

  • Maybe the Board could argue that a commitment to “consider” something need not imply taking a formal vote on it,⁴ but regardless of whether the 2016 framework technically requires a formal vote, is the CCyB something that you think the Board should regularly be voting on, even if just to affirm the CCyB’s current setting at 0?

22. Your overall views on the 2023 Basel Endgame proposal have been pretty clear, but there is one thing I am curious about. In your statement on the 2023 proposal, you said that “capital rules should give greater recognition to bona fide transfers of risk that achieve the same economic outcome as a permitted risk transfer under the rules.”

• Could you elaborate on what you meant here?

• In September 2023, the Board released a Legal Interpretation FAQ describing a process through which firms could request approval to treat certain credit-linked-note transactions as synthetic securitizations.

  • What is your assessment of how that process is working?

  • Is the treatment of these types of transactions something that you believe could or should be addressed as part of the Basel Endgame package, rather than requiring firms to go through the reservation of authority process described in the FAQ?

23. The conventional wisdom seems to be that the Basel Endgame rule will move forward in some fashion or another, but there is more doubt as to other proposals from the past few years, including the agencies’ proposed long-term debt rules.

• What do you think the next steps should be with respect to long-term debt rules?

• Assuming the agencies do move forward with long-term debt rules, what is the proper sequence of events for proposing and or finalizing those rules, given the interaction of long-term debt rules with other proposals?

24. Last July, you said that with respect to “liquidity reform, I think it is imperative that we tackle known and identified issues that were exposed in the banking stress in the spring of 2023.”

• Now two years on from the 2023 stress, how do you think the Board and the other agencies have done in addressing these issues? What more remains to be done?

• In the same speech from last July, you said that “if we are honest, we recognize that our prior efforts to reduce discount window stigma … have not been durable or successful.” You called for the Board to “explore ways to validate the use of discount window lending in our regulatory framework,” which could include recognizing a firm’s discount window borrowing capacity “in calculating a firm’s compliance with the Liquidity Coverage Ratio.”

  • Is this an idea you would intend to pursue as Vice Chair for Supervision?

• Along similar lines, what do you think of the FAQ the Board released last August on internal liquidity stress testing?

  • What do you make of the differences in opinion on how to interpret the FAQ?

  • Is there anything you believe the Board should do to make its position more clear?

The 2023 Bank Failures

25. You generally were skeptical of most, though not all, proposals for new or stricter regulation that were floated following the 2023 bank failures. You did say, however, that “[t]here is room to improve bank supervision for large banks, particularly those in Category IV of the U.S. tailoring framework.”

• What specific changes to supervision would you like to make with respect to Category IV banks?

26. In 2023, you called several times for an independent third-party review of the Board’s supervision of Silicon Valley bank.

• Do you still believe that this sort of review would be helpful, or has the time for that now passed?

27. Although the independent third-party review that you envisioned did not occur, there were reviews conducted by the Board’s Inspector General and by the Government Accountability Office. In response to these reviews, the Board committed to undertake various reviews and to potentially make various changes. It is not clear from publicly available information, however, what these reviews ultimately produced.

• In response to the IG’s report, the Board’s Director of the Division of Supervision and Regulation wrote that the Board would, by December 31, 2024, “complet[e] a comprehensive review of the [Regional Banking Organization] supervisory program,” and would, in certain cases, “increase[] supervisory activity” for RBOs with certain risk, size, complexity and growth characteristics.

  • Was the review of the RBO program completed by the end of 2024, as promised? What were the key results of that review?

• In response to the same IG report, the Board’s Director of the Division of Supervision and Regulation committed to assessing, again by December 31, 2024, whether the Bank Exams Tailored to Risk (BETR) model is appropriate for regional banks. The Director explained that this “may entail a move away from BETR for some or all” regional banks.

  • What were the conclusions of this assessment of the BETR model as applied to regional banks?

• In response to a GAO report on timely escalation of supervisory actions, the Board’s Director of the Division of Supervision and Regulation committed to “evaluating [the Board’s] procedures for escalating supervisory concerns and issuing enforcement actions.” Following that evaluation, the Board would “revise [its] guidance, as necessary, to ensure it outlines the Federal Reserve’s expectations for use and escalation of enforcement actions and incorporates measurable criteria where appropriate.”

  • What is the status of this project?

28. In 2023 the Federal Reserve Board’s Inspector General completed a review of the supervision of Silvergate Bank. The Inspector General released a brief summary of its review, but asserted that “We cannot publicly release our full report given Silvergate’s status as an open institution and the confidential supervisory and trade secret information described in our report.” Today, Silvergate Bank no longer exists, having completed the voluntary liquidation that was already well underway at the time of publication of the IG report. Also, confidential supervisory and trade secret information relating to Silvergate continues to be released in court filings in an ongoing case brought by the SEC against certain Silvergate executives.

• Given all this, do you believe the IG’s justifications for keeping the Silvergate report secret remain valid?

• Regardless of what the IG has chosen to release or not release, do you believe it would be helpful for the Board to release materials relating to its supervision of Silvergate, as the Board did for SVB?

29. You served as the Commissioner of the Kansas Office of the State Bank Commissioner from January 2017 to November 2018. During that time, a small Kansas state-chartered bank failed. In one of your first speeches after joining the Board, you remarked that “in my home state of Kansas I saw the profound effects a single failure can have on a community.”

• Based on your experience with that bank failure while Commissioner, is there anything that you believe could or should be improved with respect to how the FDIC conducts auctions for failed banks?

Other Topics

30. In responses to Questions for the Record from Senator Warren following a May 2018 Senate hearing, you discussed the Board’s 2018 Wells Fargo order and wrote that “with regard to lifting the asset cap imposed, I would only vote to do so if the required improvements are implemented to the satisfaction of the Board.”

• Can you say more about what specifically you will need to see before you would support a vote to lift the asset cap?

• More generally, how do you view asset caps as an enforcement tool? Under what circumstances, if any, would you support one?

• What do you understand to be the factor or factors that distinguished the Wells Fargo case, where an asset cap was imposed by the Board, from the TD case, where an asset cap was not imposed by the Board?⁵

31. In August 2022, the Board adopted final guidelines for Reserve Banks to use in evaluating requests to access Federal Reserve accounts and payment services. You released a statement calling the guidelines “an important step to provide transparency and consistency across the Federal Reserve System with respect to such requests.” You also noted, however, that the guidelines were only a first step and that more work remained to be done.

• Now that the guidelines have been in place for a few years, what is your assessment of how they are working?

• Are there steps the Board should take to clarify or revise its approach to master accounts, particularly if, as may be the case, the next few years will see renewed interest in new business models and novel charters?

• Whether payment stablecoin issuers should be able to have to master accounts is one of a few contentious issues regarding the stablecoin bills currently being considered in the House and the Senate. Do you have a view on that question?

32. In June 2023, the Federal Reserve Board approved a bank’s application to open a new branch. The application process had taken longer than is typical because a public comment was received opposing the transaction, and therefore the application required approval from the Board, rather than from the Reserve Bank. You released a statement saying that “the Board should improve its approach to processing applications in cases where a member of the public has made an adverse comment, particularly when the recent supervisory record addresses the concerns raised and is consistent with approval.”

• In response to a similar situation recently, you issued another statement saying that this delay was “emblematic of the current deficient approach to processing applications in cases where a member of the public has made an adverse comment.” You said that it is “time for the Board to revisit its current approach to adverse comments.”

  • What specific changes do you think the Board should make to address this issue?

33. In 2021 you discussed principles that should guide the Board in developing a new approach to supervision. One principle you mentioned is that the Board should “fully leverage our distributed structure to delegate decision making to our Reserve Banks, without diminishing the Board’s important policymaking and oversight role over the supervision of banks.”

• Are there specific matters currently not delegated to the Reserve Banks, including action on certain bank applications, that you believe should be delegated to the Reserve Banks? If so, which ones?

34. There are strict restrictions on the disclosure of confidential supervisory information (CSI). In March 2024, you noted that the CSI rules “frustrate visibility into structural shifts in the supervisory process.” You returned to this theme again recently, voicing concerns that bank exams and supervisory guidance protected by “the veil of confidential supervisory information” may have “far lower standards for justifying actions taken” as compared to the standards that must be met when adopting regulations.

• What specific changes would you like to make to the CSI rules to address the issues you have identified?

35. In a few speeches in 2022 and early 2023, you suggested that, in the interest of increasing transparency and providing assurance to banks regarding consistency in supervisory expectations, it would be useful for the Board to publish the supervision criteria implemented by the Large Institution Supervision Coordinating Committee, known as the LISCC manual. In February 2023, the Board did publish something it called the LISCC manual, but the manual that was published was not completely consistent with how the LISCC manual had previously been described.

• Did the document the Board released in February 2023 match your understanding of what is meant internally when the Board refers to the LISCC manual?

• If not, what was missing, and is there more information about the LISCC program that you believe would be helpful to release to the public?

36. In speeches in 2020, you suggested that the federal banking regulators could provide more transparency with respect to their supervision of third-party service providers. For example, in February 2020 you said that the agencies should “explore the possibility of publishing the list of service providers subject to supervision by the agencies.”

• Did the agencies wind up exploring this idea? Do you yourself think it would be a good idea?

37. You also said later in February 2020 that you had asked Board staff “to work with other agencies to develop and propose workable options for giving banks the benefit of the knowledge that supervisors have about their potential providers in an appropriate manner.”

• What options did Board staff propose to you? What options did the Board ultimately pursue?

• Is this something you would intend to revisit as Vice Chair for Supervision?

38. In a November 2020 speech, you noted as a “prominent vulnerability” “the funding and liquidity profile of mortgage companies.” You highlighted in particular liquidity risks related to mortgage servicing:

[T]he main liquidity concern today comes from mortgage servicing. If borrowers do not make their mortgage payments, mortgage servicers are required to advance payments on the borrowers' behalf to investors, tax authorities, and insurers. Although servicers are ultimately repaid most of these advances, they need to finance them in the interim. The servicers' exposure is greatest for loans securitized through Ginnie Mae, as they require servicers to advance payments for a longer period than the GSEs. In some cases, servicers may also have to bear large credit losses or pay significant costs out of pocket. Because mortgage companies are now the major servicers for Ginnie Mae, this liquidity risk—and possibly solvency risk—is a significant vulnerability for these firms if borrowers stop making their payments.

In May 2024, FSOC released a report on nonbank mortgage servicing. The report discussed various vulnerabilities, including liquidity risk, and set out a series of recommendations.

• I understand that the Vice Chair for Supervision is not a member of FSOC, but given your prior remarks what did you think of the May 2024 FSOC report and its recommendations?

1. This is on numbered page 125 (PDF page 133) in response to questions for the record from Rep. Donalds. Referencing Rep. Donalds’s questions here should not necessarily be taken as an affirmation of the alleged factual premises underlying them (I have no idea).

2. See pages 14-15 of this filing.

3. For example, in June 2024, the Board’s General Counsel wrote that there have been “comprehensive Board staff evaluations of Regulations O, W, H, K and Y, which reviews have not yet resulted in proposed rule changes.”

4. But see former Governor Brainard’s comments, e.g. in this 2018 speech (“The CCyB framework, which was finalized in September 2016, requires the Federal Reserve Board to vote at least once per year on the level of the CCyB.”) or this 2019 Congressional testimony (“The Board votes once a year on the level of the CCyB.”), which seemed to understand the 2016 framework as requiring an actual vote.

5. The Board’s action was taken against Toronto-Dominion Bank (i.e., the parent Canadian bank) and two of TD’s U.S. intermediate holding company subsidiaries. The OCC’s action, against TD’s U.S. national banks, did include an aggregate asset cap applicable at the U.S. national bank level.