BPInsights: May 2, 2026

Stress Test Overlap, Capital Levels: Takeaways from BPI's Basel Testimony

BPI President and CEO Greg Baer testified Tuesday at a House Financial Services hearing titled "Prioritizing Main Street: Evaluating the Impact of Capital Proposals on Economic Growth and American Communities." Baer discussed the U.S. banking agencies' recent capital proposals, the interactions between different elements of the capital framework and the effects on the economy and the financial system. Other witnesses included Mortgage Bankers Association CEO Robert Broeksmit, Mayra Rodriguez Valladares of MRV Associates, Reginald Griffith of Louis Dreyfus Company and Luigi De Ghenghi of Davis Polk & Wardwell.

Here are some highlights from the hearing:

• Rep. Bill Huizenga, vice chairman of the committee, spoke to banks' role in capital markets financing, saying, "The revised proposal does more to ensure that banks continue their crucial work as intermediaries and that risks flow to those most able to manage them."
• Rep. Brad Sherman (D-CA) noted that the proposal no longer penalizes companies that are not publicly held. "When it comes to commercial loans, the original proposal discriminated in favor of companies that were publicly held and giant companies that has been ameliorated. And as ranking member on capital markets, I'm pleased to see that capital market trading activities are no longer being penalized by these rules now."
• The revised Basel proposal more accurately captures risk, leading to more efficient capital allocation, Greg Baer said. He also noted that Fed Chair Powell referred to bank capital as "about right" in 2019 - since then, capital has increased significantly.
  • The Fed has rightly acknowledged there is work to be done regarding overlap in the Basel proposal and the stress tests.
  • The banking agencies should carefully tailor requirements to account for economic growth and institutions' differing risk profiles.
  • By publishing stress test models and scenario designs for public comment, the Federal Reserve is increasing transparency and regulatory certainty.
• While the proposal improves on the 2023 iteration, the omission of private mortgage insurance has raised questions. PMI is an important hedge for banks against credit risk. "We want banks to hedge their risks, and one way to hedge the risk is to have private mortgage insurance," said MBA's Broeksmit.
• Broeksmit also outlined the positive effects of the proposal for homebuyers and renters, such the capital treatment of mortgage servicing assets. "Let me say clearly, the agencies have listened. This new proposal is meaningfully better than the current bank capital framework, and the proposed revisions in 2023 that would have caused serious disruption to both residential and commercial real estate markets."
• Rodriguez Valladares made several policy recommendations such as extending the liquidity coverage ratio to Category IV banks, retaining a binding 72.5% output floor on internal risk models and restricting dividends and buybacks for any banks within 200 basis points of the post-NPR minimum.

To watch the full hearing, click here.

Five Key Things

1. Market Structure, Pig Butchering Takedown: The Crypto Ledger

Here's the latest in crypto.

• Market Structure Bill. Senate Banking Committee Chairman Tim Scott (R-SC) said this week he wants to mark up crypto market structure legislation in May and then put it on the Senate floor in June or July. Sen. Thom Tillis (R-NC) and Sen. Angela Alsobrooks (D-MD) released "finalized" language late Friday regarding stablecoin yield. The text proposes three prongs that the authors believe balances stablecoin rewards against the risks of deposit flight from the regulated banking system. This week, Tillis also said lawmakers should address a provision in the bill on crypto software developers and illicit activity that has garnered concerns from law enforcement groups. Notably, Sen. John Kennedy (R-LA) has not given his definitive support to the bill. He said this week that he cannot "comment on a bill intelligently without reading it - especially not something this important and this complicated."
• FBI Leads Scam Center Shutdown. A global task force led by the FBI arrested at least 276 suspects and dismantled at least nine scam centers used for "pig butchering" crypto fraud schemes. The FBI worked with authorities in Thailand, Dubai and China to target international fraud rings operating pig butchering scams.
• U.S. Freezes Millions of Dollars' Worth of Iran-Linked Crypto. The Treasury Department late last week froze $344 million in cryptocurrency in digital wallets tied to Iran. The department worked with blockchain analytics experts to identify digital wallets with ties to Iran's central bank. Iran has demanded tolls to access the Strait of Hormuz be paid in cryptocurrency, which is also a key conduit for sanctions evasion.
• For Crypto, What's the Freezing Point? Are stablecoin issuers required to freeze customer funds in real time during a hack? That question has gained new urgency amid discrepancies between different crypto platforms during recent hacks and geopolitical events, American Banker reported. Circle chose not to freeze funds on its stablecoin network during a North Korean hack in early April, whereas Tether recently took a more proactive approach to freezing coins. Still, Tether's record is not consistent, the article notes: "Tether's record on freezes during active incidents has not always been this proactive. Indeed, even today, Tether remains highly popular among people seeking to evade sanctions."

2. OCC Stablecoin Rules Need Clarifications to Balance Innovation, Risks

The OCC's proposed rule on GENIUS Act implementation requires updates and clarifications to better balance the potential benefits of stablecoins with the risks to financial stability and consumer protection, the Bank Policy Institute, Consumer Bankers Association and Financial Services Forum said in a comment letter filed Friday. Read the full recommendations here.

3. New FTC Data Shows Social Media is Where Scams Thrive

American consumers have lost $2.1 billion to social media scams in 2025, according to new data released this week by the Federal Trade Commission. Those are just reported losses, which generally undercount the overall prevalence of fraud and scams. The data shows that nearly 30 percent of scam victims in 2025 pointed to social media as the source.

• Social media scams produced far more in losses - 8x more than in 2020 - than any other contact method used by scammers to reach consumers.
• Consumers reported losing more money to scams that started on Facebook than on any other social media platform.
• Social media offers scammers easy access to consumers and the ability to target scams to consumers' interests, the FTC noted.
• Scams on social media can range from romance scams to investment and shopping scams.
• BPI has called on regulators and Congress to subject social media companies to enforceable requirements to prevent scams on their platforms and to require timely takedown of scam ads. Because they rely on ad revenue, social media platforms have incentives to profit from scams rather than prevent them.

4. BPI Supports Removal of Reputation Risk from Fed Supervisory Programs

BPI expressed support in a comment letter this week for the Fed's proposal to codify the removal of reputation risk from its supervisory programs. Reputation risk, which came into prevalence as a supervisory concept in the 1990s, is a vague and subjective concept that examiners may use to discourage banks' engagement with certain businesses or activities. The Fed, along with the other banking agencies, recently removed reputation risk as a factor in its examination programs, as part of a broader effort to refocus supervision on material financial risks. "[T]he supervisory focus on reputation risk has shifted the role of examination from evaluating the financial condition of the firm and protecting depositors to opining on an institution's ordinary course strategic and operational decisions," BPI wrote in the comment letter. "Using reputation risk as the basis for supervisory criticism increases subjectivity in banking supervision and interferes with a firm's ability to exercise its own business judgment. Further, eliminating reputation risk aligns with the Board's stated policy that 'examiners and other supervisory staff should prioritize their attention on a firm's material financial risks.'"

5. Senate Panel Advances Warsh Nomination

The Senate Banking Committee voted this week 13-11 on party lines to advance the nomination of Kevin Warsh as Fed chair. The vote hinged on the support of Sen. Thom Tillis (R-NC), who had sought to block the nomination until the Department of Justice resolved its probe into Fed Chair Jerome Powell. With Warsh's nomination advancing out of Senate Banking, it is possible that the Senate could tee up his full confirmation in time for him to take over in time for Powell's term expiring on May 15.

• Powell Staying. At his final FOMC post-meeting press conference as chair this week, Powell said: "After my term as chair ends on May 15, I will continue to serve as a governor for a period of time to be determined." He expressed concern about legal pressure against the Fed as a threat to monetary policy independence. "I worry that these attacks are battering the institution and putting at risk the thing that really matters to the public, which is the ability to conduct monetary policy without taking into consideration political factors."

Banks Boost Treasury Holdings to Highest Level Since GFC

Large banks have increased their holdings of Treasury securities to the highest level since the Global Financial Crisis, reflecting the effects of changes in capital rules. The recently finalized changes to the enhanced supplementary leverage ratio went into effect on April 1, 2026. For years, the eSLR served as a binding constraint on banks' balance sheets rather than as the backstop it was designed to be; the new changes aim to reverse that dynamic and support Treasury market liquidity by empowering bank-affiliated primary dealers to intermediate. Net Treasury inventories held by primary dealers have risen to about $550 billion on average this year, from less than $400 billion in 2025, according to the Financial Times. The holdings represent nearly 2 percent of the overall Treasury market, the highest proportion since 2007.

Traversing the Pond

Here's the latest in international banking policy.

• City of London Reforms Headed for Parliament. A raft of financial services overhaul measures will be included in the legislative package for the UK's next parliamentary session, which will be highlighted in the King's Speech on May 13. The King's Speech is the traditional centerpiece of the State Opening of Parliament, outlining the British government's legislative agenda for the upcoming session. The next speech will highlight key reforms such as merging the Payment Systems Regulator into the Financial Conduct Authority and eliminating the certification regime, which requires bureaucratic steps related to thousands of senior financial firm staff, according to the Financial Times this week.
• New ECB Staff Paper Examines EU and U.S. Capital Regimes. An ECB staff paper published this week suggests the gap between U.S. and EU capital requirements is narrower than sometimes portrayed. "US regulators take a stricter approach to buffers for the largest banks and place limits on lenders using their own risk calculations, the ECB staff said in a paper published on Monday. New rules proposed in March are expected to slightly reduce requirements for the biggest US banks, yet they won't reverse the comparison, according to the ECB staff," Bloomberg reported. For the largest banks, "slightly lighter US rules and slightly higher steady‐state EU requirements would narrow the current gap between the respective frameworks," the ECB staff wrote.
• BoE, FCA Dispute Trading Firms' Capital Requirements. The Bank of England has expressed concern about the Financial Conduct Authority's proposals to lower capital requirements for trading firms like Jane Street and Citadel Securities in an effort to boost market liquidity, according to the Financial Times this week. "The plans have met with scepticism from the BoE, where officials are worried they could increase financial stability risks by making major trading firms less able to withstand a crisis," the FT reported.

Member News

KeyCorp to Acquire Clearwater UK

KeyCorp recently announced a definitive agreement to acquire Clearwater Corporate Finance LLP (Clearwater UK), a leading UK-based middle market investment banking advisory firm. The transaction will mark Key's strategic entry into the Western European market, expanding its ability to provide financial advisory services to institutional clients.

The transaction builds on a collaboration agreement established in 2020 between KeyBanc Capital Markets Inc. and Clearwater. This multi-year partnership has validated the strategic and cultural compatibility between the organizations. The agreement covers the UK entity with the intent of strengthening collaboration across Clearwater's broader European network.

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Upcoming Events

• 5/13/2026: House Financial Services Committee Markup
• 5/18/2026: European University Institute & Bank Policy Institute 2026 Research Conference on Banking Regulation
• 5/19/2026: House Financial Services Subcommittee on National Security, Illicit Finance and International Financial Institutions Hearing on Modernizing the BSA for the 21^st Century
• 5/20/2026: Semafor Banking on the Future Forum
• 5/20/2026: House Financial Services Subcommittee on Digital Assets, Financial Technology and Artificial Intelligence Hearing: How Bank-Fintech Collaborations Enhance Financial Infrastructure