BPInsights: December 20, 2025

Key Takeaways from The Hill x BPI "Modern Money" Event

BPI and The Hill collaborated to host an event on Tuesday, Dec. 16, "Modern Money: The Next Chapter in Banking, Regulation and Financial Trust," featuring discussions with lawmakers, experts and financial industry leaders on the future of financial services, policy and regulation as innovation advances. The event examined themes such as how innovation and oversight can advance to reinforce trust in the financial system, and how responsible modernization can evolve as digital and traditional financial ecosystems converge.

Fraud and Scam Mitigation
Fraud is a modern heist: It moves rapidly and often originates and spreads on social media.
The first panel focused on fraud and scam prevention, a matter of increasing urgency for policymakers and industry. Banks are investing heavily in preventing fraud and addressing it after it occurs, but cannot do so alone - a comprehensive solution requires buy-in from the telecom and tech sectors and the entire U.S. government. Reps. Bill Foster (D-IL) and Dan Meuser (R-PA) discussed the problems and the solutions in fraud and scams during the panel. A key theme was the role of social media as a breeding ground for scams and what should be done to stop scams at their source, as well as the benefits of digital ID in fraud prevention.

Open Banking and Section 1033
Consumer data privacy is a key element of the open banking debate.
The second panel focused on the future of open banking as the CFPB prepares a new rule on financial data sharing under Section 1033 of the Dodd-Frank Act. The panel featured experts from banks, the fintech industry and a consumer advocacy group. Panelists discussed the high volume of data requests that banks receive - likely much more than necessary for providing services - and the need to protect consumers' sensitive data in that environment. Panelists also discussed differing views on what federal law says about financial institutions charging fees to access this data.

• Data security remains paramount.
• All financial firms handling sensitive customer data - not just banks - should be responsible for keeping it safe.
• Banks, fintechs and consumer groups agree on the value of data minimization and secondary data use limits to help further enhance data sharing security.

Bank Charters
The final panel examined the changing state of bank charters. The boundaries of what it means to be a bank are up for debate as crypto, fintech and other nonbank firms seek banking charters. Panelists discussed the limits and obligations of each different type of charter, the current landscape of novel companies applying for national trust charters and concerns about transparency and risks to the banking system. The discussion followed OCC conditional approvals on Friday of several trust charter applications.

• "If you want to be a bank, be a bank."
• Fintech and crypto firms applying for trust charters should limit themselves to the activities authorized by that specific charter.
• Innovation is inevitable, and both regulators and the private sector will need to respond accordingly.
• Banks should be able to experiment safely in innovative technology.

To watch a recording of the event, click here.

Five Key Things

1. Fed Issues Payment Account Proposal

The Federal Reserve on Friday issued a request for information on payment accounts for eligible financial institutions. BPI responded on Friday with a statement: "Today's proposal attempts to establish minimum protections for expanded Federal Reserve account access but warrants further scrutiny to ensure that credit, settlement, illicit finance and other risks would be fully mitigated. Master account applications are carefully reviewed because insufficient protections can harm the structure, stability and resilience of the U.S. payments system. BPI will continue to advocate for responsible innovation backed by appropriate risk mitigants codified in law."

BPI also published a factsheet describing the risks and safeguards of these accounts. Access it here.

2. Fed Paper Examines Stablecoin Effects on Banks

An analysis published this week by Jessie Jiaxu Wang of the Federal Reserve Board provides insights on how stablecoins could affect the U.S. banking system. The paper explores three dimensions of stablecoin impacts: displacement of deposits and changes to banks' funding mix, liquidity risk profile and cost of capital; implications for bank credit provision; and broader structural consequences in the banking system. Here are some notable highlights.

• Concentration Risk. The shift of retail bank deposits into stablecoins could result in more concentrated, uninsured deposits in the banking system, the paper noted. "As retail deposits substitute into stablecoins, banks face more concentrated, uninsured, wholesale deposits, increasing both liquidity risk and funding costs, despite potentially limited changes in total deposits." Even if the aggregate size of deposits in the banking system remains stable, the composition of those deposits could change substantially, with important implications for funding stability, liquidity risk and lending capacity.
• No Longer 'Sticky.' If the proportion of uninsured wholesale bank deposits increases from stablecoin growth, the volatility presented by less "sticky," more runnable deposits could result in less lending capacity: "Asset-liability matching would become more complex with a more volatile deposit base, potentially forcing banks to hold larger liquidity buffers or shift toward more liquid assets, thus reducing the volume of loans they could originate or hold."
• Liquidity Requirements. Bank liquidity requirements such as the liquidity coverage ratio could reinforce these shifts - wholesale uninsured deposits carry higher runoff assumptions and therefore require banks to hold larger stocks of high-quality liquid assets. This reduces the available capacity for lending, especially long-term credit, the analysis says. It notes that the net stable funding ratio has similar consequences.
• How Much? The analysis features a "back of the envelope" estimate of the effects of stablecoin adoption on bank loans, with three different scenarios: low adoption with high "recycling" back to bank deposits; moderate adoption with low recycling and some offset by foreign users of USD stablecoins; and high adoption with access to master accounts and interest paid on reserves. "Taken together, for each $100 billion of net deposit drain not recycled to banks, empirical pass-throughs imply a $60 to $126 billion contraction in bank lending based on empirical estimates of the money multiplier, with an additional $0 to $15 billion composition-driven reduction if the recycled balances take wholesale form under LCR/NSFR assumptions.
• Other Implications. The analysis suggests that stablecoin adoption could also threaten relationship banking. "Smaller and less digitally advanced institutions, by contrast, may face more serious headwinds. Erosion of their deposit base and rising funding costs could weaken their lending capacity, particularly in markets where relationship banking has been central to local credit provision."

3. Erebor Approved for Deposit Insurance

Erebor, a crypto- and tech-focused firm conditionally approved for a national bank charter by the OCC, this week obtained FDIC approval for deposit insurance. The FDIC found that Erebor satisfied the statutory factors for deposit insurance application approval, subject to certain conditions. Such factors include the institution's financial condition and history, its capital adequacy, its future earnings prospects and the quality of its management. Erebor received OCC conditional approval for its bank charter in October.

4. Waller Stresses Importance of Fed Independence

Federal Reserve Governor Christopher Waller, who interviewed this week for chair of the central bank, said he would emphasize to the President the importance of central bank independence. "I spent 20 years of my life working on central bank independence and why it was important. There's no doubt," Waller said in a CNBC interview this week. "I've got a long paper trail of this. The one thing everybody always forgets in central bank independence is there's another side of it, which is accountability. There's no institution in this country that is unaccountable to the electorate … and that's what people often forget is that we want central bank independence to be free of political interference, but we still have to be accountable to the American public, and we try to do that with the chair testimony to Congress twice a year" and with post-FOMC meeting press conferences. Other candidates for the chairmanship include Kevin Hassett, Kevin Warsh, Michelle Bowman and Rick Rieder, according to media reports.

5. FDIC Proposes Licensing Rules for Bank Stablecoins

The FDIC this week proposed licensing rules to govern banks' applications to issue of stablecoins through a subsidiary and to engage in stablecoin-related activities. The proposal would implement provisions of the GENIUS Act, a stablecoin law enacted earlier this year that allows insured depository institutions to issue payment stablecoins through a subsidiary and to engage in certain related activities.

In Case You Missed It

Banks, Capital and Competitiveness: Challenges with an ECB Working Paper

A recent ECB working paper found that banks reach peak profit efficiency - a bank's ability to generate revenue given its costs - when their capital ratios are 18 percent. The paper, "Capital requirements: a pillar or a burden for bank competitiveness?" by Markus Behn and Alessio Reghezza, concludes that it is therefore untrue that high capital requirements hurt banks' competitiveness.

The result appears to be in conflict with the premise of international capital standards (the need to ensure a level playing field on capital requirements to avoid regulatory arbitrage between jurisdictions) and with consensus economic research that higher capital results in higher costs for banks.

A new BPI note examines the ECB paper, suggesting that:

• The finding is likely to be imprecisely estimated.
• Profit efficiency is a poor measure of competitiveness.
• The authors' conclusions are at odds with banks' choices and the foundational premise of international capital accords.

Senate Holds Hearing on Access to Banking

The Senate Banking Subcommittee on Financial Institutions and Consumer Protection held a hearing on Tuesday examining access to banking, including looking at whether a fair access standard was necessary and what that could potentially look like. The hearing came shortly after the OCC issued a report on "debanking" last week. Witnesses at the hearing included University of Wyoming law professor Julie Hill, Kathleen Sgamma, principal of Multiple-Use Advocacy, and Tyler Klimas, principal of Leaf Street Strategies.

• Regulatory Pressures. Sen. Thom Tillis (R-NC), the chair of the subcommittee, differentiated between account closures initiated by financial institutions and "regulator-initiated debanking," which he called "more opaque and, I think, in many ways, more sinister." "Prudential regulators pressure, coerce and/or direct financial institutions to terminate relationships with certain customers or industries," Tillis said. "Infamously, Operation Choke Point under the Obama Administration, saw the Department of Justice and the FDIC systematically target firearms dealers, ammunition retailers, payday lenders and other legal businesses they found politically objectionable. More recently, the Biden Administration deployed a similar playbook against the digital asset industry in what many call Choke Point 2.0."
• Supervisory Trust. In addition to regulation, bank supervision plays a key role in the discussion. Persistent rumors of debanking "undercut trust in supervisors," Julie Hill said at the hearing. The secrecy of supervision and the level of discretion in examiners' authority make it harder to paint a clear picture of account closures, Hill said. The banking agencies' use of reputational risk in supervision, which recent efforts have sought to reverse, was another subject of Hill's testimony.
• Other Topics. Subcommittee Ranking Member Catherine Cortez Masto (D-NV) discussed banking access for legal cannabis businesses, a subject of legislative proposals in recent years, and account access for unbanked and underbanked individuals.

Fed Issues Guidance on Bank Innovation

The Federal Reserve on Wednesday issued a new policy statement aimed at facilitating responsible bank innovation. The policy statement creates an avenue for both insured and uninsured state Fed member banks to engage in certain innovative activities. For insured state member banks, the policy statement maintains that these banks generally may not engage as principal in any type of activity that is not permissible for a national bank, or that has not been approved by rule for insured state-chartered banks by the FDIC. For uninsured state member banks, the policy statement acknowledges that these banks may be permitted by the Board to engage in activities as principal that are impermissible for insured state member banks, provided that such activities are conducted in a manner consistent with bank safety and soundness and preserving the stability of the U.S. financial system.

"New technologies offer efficiencies to banks and improved products and services to bank customers," said Vice Chair for Supervision Michelle Bowman in a statement. "By creating a pathway for responsible, innovative products and services, the Board is helping ensure that the banking sector remains safe and sound while also modern, efficient, and effective."

The Board simultaneously withdrew a 2023 policy statement that limited Fed-supervised state member banks, both insured and uninsured, to the same activities permissible for banks supervised by the other federal banking agencies. The financial system and the Fed's understanding of innovative products and services have "evolved" since that statement was published, so it "is no longer appropriate and has been withdrawn," the Fed said in a statement.

OCC Urges Tenth Circuit to Consider Interest-Rate Case Before Full Court

The OCC this week filed an amicus brief in the U.S. Court of Appeals for the Tenth Circuit case National Association of Industrial Bankers v. Weiser. The amicus brief called for the Tenth Circuit to consider the case before the full court. The case centers on Colorado's decision to opt out of a federal law authorizing state banks to charge interest at the rate permitted by the laws of the state in which they are located (or the alternative reference rate) and to export this rate to borrowers in any state. The Colorado opt-out could jeopardize access to bank lending for Colorado residents. A Tenth Circuit panel decision in the case undermines the benefits of the federal interest rate framework that Congress granted to state banks and places them at a significant competitive disadvantage compared to national banks, the OCC said. "[T]he panel decision threatens to diminish the vibrancy of the dual banking system and to harm consumers by reducing their access to credit across the country," the agency said in its brief. Comptroller Jonathan Gould recently said the panel decision is inconsistent with Congressional efforts to create competitive equality between state- and federally chartered banks.

The Crypto Ledger

Here's the latest in crypto.

• PayPal Applies for ILC. PayPal has applied for an industrial loan company charter, according to an announcement this week. ILCs threaten to erode the mandatory separation of banking and commerce, BPI has repeatedly warned.
• Market Structure Next Year. The Senate will not vote on a crypto market structure bill in 2025, POLITICO reported. Instead, a markup is expected early in 2026.
• Crypto, Bank Reps Meet with Senators. Key members of the Senate met with banking and crypto industry representatives this week to discuss the market structure bill. The meeting included representatives from the Blockchain Association, Coinbase, Chainlink Labs, the Financial Services Forum, SIFMA, BNY and Goldman Sachs. There are several outstanding issues remaining in the bill, including the payment of stablecoin yield and the treatment of DeFi technology.

Walmart Objects to Interchange Fee Settlement Between Card Issuers, Merchants

Walmart late last week filed an objection to the recently proposed interchange-fee settlement agreed between retailers and card issuers. The settlement, principally related to credit cards, would give greater flexibility to merchants on which cards they accept and reduce interchange fees. In a court filing, Walmart dismissed the proposed deal as "a mere mirage of relief" and said it favors small merchants over large national retailers. The company argued that the court should either reject the settlement and decertify the class, permit class members to opt out or carve out large national merchants from the agreement. The Walmart objection followed others by the National Association of College Stores, Energy Markets of America and other groups.

Traversing the Pond

Here's the latest in international banking policy.

• ECB Proposes to Extend Elderson's Term. The European Central Bank this week proposed to extend the term of Frank Elderson as vice chair of the central bank's Supervisory Board until the end of his mandate as an ECB Executive Board member. Elderson has held the position since 2021. The measure must be approved by the European Parliament.
• FCA Invites Comment on Crypto Rules. The UK's Financial Conduct Authority this week issued a consultation seeking public comment on crypto rules. The regulator is seeking comment on how it would regulate trading platforms, intermediaries, aspects of lending and borrowing, staking and DeFi, as well as crypto disclosures and prudential requirements.
• ECB/EBA Publishes Report on Payments Fraud. The ECB and European Banking Authority this week provided an update on EU payments fraud in a new report. Payments fraud across the European Economic Area totaled €4.2 billion in 2024, compared to €3.5 billion in 2023 and €3.4 billion in 2022. The payment fraud rate in the bloc remained stable at around 0.002 percent of total value of transactions in a calendar year. New types of fraud are rising in prevalence, such as "authorized push payment" scams. The report noted that the "strong customer authentication" requirement introduced in 2020 has been broadly effective, but it is not sufficient to address scams powered by social engineering.
• ECB to Assess Banks' Stress Testing Capabilities to Capture Geopolitical Risk. The ECB is asking major European banks to design their own severe geopolitical shock scenarios, signaling that geopolitical risk is becoming a core element of supervisory assessments and future stress-testing frameworks. The ECB announced plans to assess 110 directly supervised banks on the management of geopolitical risk. This will take the form of a reverse stress test, where a pre-determined outcome is prescribed and each bank defines the scenario in which that outcome would materialize. Aggregate results are to be communicated in summer 2026.

• EU CSDDD/CSRD. The European Parliament and Council have formally approved the provisional political agreement that was reached on the changes to the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D or CSDDD) under the Omnibus I package. This will now need to be published in the Official Journal of the EU and will enter into force on the 20^th day after publication. The revamped rules will apply to fewer companies and reduce some obligations for firms. The updated sustainability rules are part of the Commission's Omnibus I simplification package. It was presented in February 2025 with the aim to cut red tape and make compliance with sustainability rules easier with the goal of boosting EU competitiveness.

Eleventh Circuit Rules Corporate Transparency Act is Constitutional

The U.S. Court of Appeals for the Eleventh Circuit ruled this week that the Corporate Transparency Act is constitutional, reversing a lower-court decision to block enforcement of the anti-money laundering measure for plaintiffs who had challenged it. The Eleventh Circuit ruled that the CTA, which requires businesses to report information on their beneficial owners, regulates economic activities with a substantial impact on interstate commerce and does not violate protections against unreasonable searches. The decision reverses a ruling by an Alabama federal court last year that the CTA exceeds the Constitution's limits on Congress' power.

DOJ Checks on Fed Profitability, with Potential CFPB Funding Implications

The U.S. Department of Justice this week asked the Federal Reserve if it has returned to making profits, which could provide an opening for the administration to replenish the CFPB's funding. The letter requested the Fed's "opinion" on whether its revenues currently exceed its interest expenses and whether the Fed anticipates such a surplus continuing into the coming weeks.

Things to Watch as 2025 Wraps Up

• Comments are due on Dec. 29 on the FDIC and OCC's proposal on unsafe and unsound practices.
• In the new year, lawmakers and regulators will turn to a rewrite of Basel capital standards and crypto market structure legislation.

Ana Botin: Low Growth is Now Europe's Biggest Financial-Stability Risk

The biggest financial stability risk in Europe is no longer banks, but low growth itself, Santander Executive Chair Ana Botin wrote in a Financial Times op-ed this week. The op-ed referred to recent efforts by EU authorities seeking to simplify and streamline the bloc's financial regulatory framework. Botin observed that the U.S. and UK are taking actions to support growth, such as revising capital requirements to promote more lending capacity. "The message from Washington and London is unmistakable: if you want growth, you cannot keep tightening the screws on those institutions that finance the real economy," she wrote. "Strong growth and strong stability are not opposing goals - they reinforce each other."