BPInsights: June 6, 2026

Capital, Crypto, Fraud: Highlights from the Prudential Regulators Hearing

Federal prudential banking regulators from the Federal Reserve, OCC, FDIC and NCUA appeared before the U.S. House Financial Services Committee on Thursday. The hearing, "Oversight of Prudential Regulators," examined recent rulemakings and activities, including the Basel capital proposal, novel bank charters and fraud. Here are some highlights from the hearing. For a full overview, click here.

1. Master Accounts. Federal Reserve master account access for novel institutions like crypto firms should remain strictly limited and subject to robust regulatory requirements, Rep. Stephen Lynch (D-MA) said. He expressed concern about the risks posed by the Kansas City Fed's recent approval of Kraken's master account "that was granted even before we had the framework set up" for "skinny" or limited payment accounts. Vice Chair for Supervision Michelle Bowman noted that the approval was for a limited purpose and time period. "We look forward to understanding how that entity will be using its access, very limited access to the payment system, to understand how other similar entities might use an account as well," she said.
2. BSA/AML and Illicit Finance Risks. Non-traditional entities accessing Federal Reserve payment accounts, often termed "skinny" master accounts, must be held to equivalent BSA/AML compliance and illicit finance standards as chartered banks, Rep. Sean Casten (D-IL) said. He asked if skinny account holders without Bank Holding Company Act requirements would have the same equivalent AML protections as other banks. "How are we protecting against making sure that people who get these skinny accounts can't use that as a way to bypass some of our AML protections?" Casten said. "We did just issue a proposal which does require BSA/AML requirements as a part of that analysis," said Vice Chair Bowman. "So it is not entirely accurate to say that there's no requirement for BSA/AML procedures. There's also not necessarily a requirement for a charter, a chartered entity, to be able to qualify for a master account, especially for one of the limited purpose ones, as we call them, skinny master accounts."
3. Capital Overlaps. Future updates to the Basel capital framework must comprehensively address duplicative stress testing requirements to eliminate regulatory overlap, Rep. Mike Lawler (R-NY) said. "While I appreciate the consideration behind the agency's approach, more comprehensive amendments to include stress testing would be needed to address this overlap fully. Vice Chair Bowman, how do you plan to more finely tune the requirements to optimize the balance between capital requirements and costs?" asked Lawler. Bowman responded that regulators welcome comments which are due June 18 on the Basel proposal, and the stress testing proposal will be finalized "hopefully by the end of this year." "We're optimistic that we will address the overlaps that existed between the original stress testing framework and the Basel proposals as we're completing that work," Bowman said.
4. Fraud. Mitigating complex fraud requires expanded data sharing and cross-agency government cooperation beyond the banking agencies, Lawler advised. "We've seen a dramatic rise in fraud, from AI-generated impersonation scams to criminals exploiting gaps in the telecom and payments ecosystem," Lawler said. "The reality is that fraudsters are innovating faster than the system built to stop them, and consumers and financial institutions are paying the price." OCC Comptroller Jonathan Gould emphasized the need for a multifaceted, interagency approach.
5. Cyber. Rep. Bill Foster (D-IL) highlighted the cyber risks associated with emerging AI models, such as Anthropic's Mythos, and asked whether small banks received timely access to the model to scan for vulnerabilities. "I can't disclose who has had access, but I can tell you that we're working both with service providers and within the banking industry to work together to understand what impacts we may need to have them mitigate and address," Bowman responded. "We have not ceased our cyber exams, in fact we continue to work with our institutions to understand how they're planning to respond."

Five Key Things

1. Payments Network Plans Tokenized Deposit Network Launch Next Year

The Clearing House plans to launch a tokenized deposit network next year in an effort to compete with crypto firms amid the rise of stablecoins and other digital assets, according to a Wall Street Journal article this week. The network will connect traditional payment rails with blockchain infrastructure and allow tokenized deposits to move instantly across blockchain technology with 24/7 settlement, the article says. The network will be available to banks across the U.S., with a launch planned for the first half of 2027, the Journal reported.

2. U.S. Sanctions Iran's Largest Crypto Exchange

The U.S. Treasury Department sanctioned Nobitex, Iran's biggest crypto exchange, and three other crypto platforms this week, accusing the firms of aiding the Iranian regime and evading U.S. sanctions. Nobitex provided "significant support" to the Iranian government, including by helping the country's central bank boost the value of the local currency through stablecoins. Crypto platforms Wallex, Bitpin and Ramzinex were also sanctioned after processing transactions for the Islamic Revolutionary Guard Corps, according to Treasury's Office of Foreign Assets Control. "While Iran's economy is in free fall, the regime has chosen to co-opt digital asset technologies for its own corrupt agenda, including evading sanctions and transferring wealth out of the country," said Treasury Secretary Scott Bessent in a statement.rts.

3. State Stablecoin Regulation Must Match Federal Oversight Regime

State-level oversight of payment stablecoins must be as robust as the federal regulatory regime, BPI emphasized in a letter to the Treasury Department this week. The letter was in response to a Treasury proposal laying the groundwork for determining when a state-level stablecoin regulatory regime is "substantially similar" to the federal regulatory framework under the GENIUS Act.

• Bottom Line. "Minimizing differences between the substantive standards that apply to a [payment stablecoin issuer] under a State-level regulatory regime versus the Federal regulatory regime is not only consistent with the plain text of the GENIUS Act, but also critical to safeguard against the risk of a 'race to the bottom' among regulatory regimes, which likely would harm holders and users of payment stablecoins," the letter says. "If a State-level regulatory regime imposes fewer restrictions or requirements on PPSIs in any material way, as compared to the Federal regime, PPSIs will have clear incentives to engage in regulatory arbitrage and seek licensure in that state." The letter draws a cautionary parallel to regulatory arbitrage among state-chartered banks in the 1980s and early 1990s, which contributed to the banking and thrift crisis at the time.
• What the Law Says. The GENIUS Act provides that certain state qualified payment stablecoin issuers (generally those with issuance of $10 billion or less) may opt for state regulation so long as the state regulatory regime is "substantially similar" to the federal framework. The Treasury Department is required to establish broad-based principles for determining when a state regime meets that threshold.
• Key Requirements. State-level regimes should have no meaningful differences in requirements for stablecoin issuers, such as reserve requirements, capital and liquidity requirements and prohibition on the payment of interest or yield.

4. BPI, ABA Urge Federal Reserve to Adjust Tailoring Rule Thresholds

BPI and the American Bankers Association this week urged the Federal Reserve to modify the thresholds for the Fed's current tailoring rule, which determines regulatory thresholds for banks of varying sizes, to account for economic growth and inflation. In a comment letter filed on Wednesday, the associations noted that the tailoring framework was designed to align regulatory requirements with banks' size, complexity and risk profile. Without periodic adjustments, thresholds become increasingly disconnected from those objectives as the economy grows.

"Indexing the regulatory thresholds established in the tailoring rule would reflect macroeconomic growth, right-size the regulatory environment and promote economic growth and financial stability," the associations stated in the letter. "It would also be consistent with the Federal Reserve's proposal to implement automatic indexing in the GSIB surcharge framework. Separately, we encourage the Federal Reserve to consider whether additional changes to the tailoring framework would improve its overall design and risk sensitivity."

5. Why the SEC Should Rescind Its Cyber Incident Rule in the Age of Frontier AI

Critical infrastructure firms' dependence on open-source software makes them vulnerable to cyberattacks. Defenders safeguarding the systems may lack a full inventory of where all the open-source components run and how they are configured, an asymmetry that favors attackers. Recent news of advanced-AI capabilities brings new urgency to this problem. Public cyber incident disclosure mandates like the SEC's rule adopted in 2023 exacerbate the situation by furnishing attackers with roadmaps for disruption without producing defensive or risk-reduction benefits. To learn more, read BPI's new blog post here.

In Case You Missed It

Banking Agencies Remove Reputation Risk References

The Federal Reserve, FDIC and OCC jointly updated materials this week to remove references to reputation risk, complementing earlier actions to end the use of the concept in supervision. "References to 'reputation' in these interagency documents could be misused as a basis to restrict individuals' and legal businesses' access to financial services due to their constitutionally protected political or religious beliefs, speech, or conduct or lawful business activities," the agencies said in a joint statement. "These updates help ensure supervisory decisions are based on material financial risks, as well as increase clarity and facilitate greater precision in supervisory decision making." BPI has expressed support for the removal of reputation risk in supervision, citing its use as a vague and subjective catch-all for examiners to exert undue control over banks' business judgments.

AI Executive Order Calls for Strengthening Federal Networks, Creating Cybersecurity Clearinghouse

The President this week issued an executive order entitled Advanced Artificial Intelligence Innovation and Security. The order directs the federal government to fortify federal networks, support critical infrastructure systems' security and tasks Treasury with establishing an AI cybersecurity clearinghouse for voluntary coordination with industry on software vulnerabilities and patches. The order emphasizes that it does not create a mandatory preclearance or licensing regime for new AI models. It directs the relevant federal agencies to develop and maintain a classified benchmarking process to assess the advanced cyber capabilities of AI models and determine the threshold at which an AI model should be designated a "covered frontier model." The associated voluntary framework would allow developers to engage the federal government to determine whether their models qualify as covered frontier models, provide the government with access to those models for up to 30 days before planned release to trusted partners and collaborate with the government to select trusted partners who receive early access.

• Bessent Comments. In a Senate hearing this week, Treasury Secretary Scott Bessent said large banks' efforts to manage the risks of new AI models create a high standard for the banking sector and the overall critical infrastructure ecosystem. "They are working diligently on their standards," he said of the largest banks. "I think the rest of the industry can learn from them." He also noted that "by their nature, [banks] have the strongest cybersecurity departments."

The Crypto Ledger

Here's the latest in crypto.

• BoE's Greene: Tokenized Deposits Could Outpace Stablecoins. Stablecoin demand could fade and be supplanted by tokenized deposits, Bank of England official Megan Greene said in recent comments. "I think tokenized deposits are probably going to take over from stablecoins and five years from now, I suspect we might wonder why we were talking about stablecoins," Greene said. Digital deposits could emerge as the ultimate winner ahead of central bank digital currencies and stablecoins, as commercial banks aim to compete, she suggested.
• Waller: CBDC is 'Solution in Search of a Problem.' Central bank digital currencies are a "solution in search of a problem," Federal Reserve Governor Christopher Waller reiterated late last week at an event in Croatia. "Almost every major central bank in the world has just stopped" pushing for CBDCs, he said, because "they just can't find a reason for this." Waller said "only the ECB and the Chinese" are pursuing CBDCs; incoming ECB Vice President Boris Vujcic pushed back, saying "there are 21 western central banks that have decided to go with the CBDC," referring to euro area nations. Waller also said the global spread of stablecoins could broaden the reach of U.S. monetary policy.
• Found Wallet, Lost Keys. Recent court cases highlight questions over the ownership rights of bitcoin holders when a digital wallet has become inaccessible, Bloomberg reported. In one case, a man used Anthropic's Claude model to unlock money from a bitcoin wallet he hadn't been able to access for nearly a decade. In another case, anonymous plaintiffs sued over long-inactive bitcoin accounts, contending that the assets are abandoned and should belong to them. "The incidents expose an issue that's barely whispered about in crypto circles these days: what happens to the vast pile of digital assets sitting untouched for years, inaccessible either because their owners lost the private keys, disappeared or simply don't want to reveal themselves?" the article says.
• Volatility Roils Crypto Markets. Notable volatility shook crypto markets this week as $1.8 billion in levered crypto positions were liquidated on June 4, marking the largest liquidation since January 2026, according to The Kobeissi Letter, an analyst report, which also observed steep dropoffs in value for Bitcoin and Ethereum late this week. Meanwhile, cryptocurrency Zcash dropped steeply in price after a security researcher unveiled a critical vulnerability in the token.
• Rep. Hill on CLARITY. House Financial Services Committee Chairman French Hill (R-AR) weighed in at an event this week on illicit finance language in the CLARITY Act. "Most crime takes place out there in the world using cash … to the extent it's on the blockchain, the CLARITY Act gives the Treasury more tools to go after illicit finance, and it's really what about the users themselves, the exchanges, people who are not regulated by the United States outside the U.S., so that extraterritorial issue, I think, is an important one. … So I don't view it as necessarily a bill issue versus an operations issue about how law enforcement uses the tools and takes action," he said. The moderator mentioned a recent letter from intelligence officials and law enforcement supporting the CLARITY Act, but cautioned that "there are current law enforcement, including the Sheriffs Association, the Fraternal Order of Police, who think this bill does not do enough and doesn't allow the prosecution of financial crimes."

Capital, Supervision: Highlights from the Fed's Supervision and Regulation Report

The Federal Reserve released its latest Supervision and Regulation Report this week. Here are some highlights.

• Resilient Banking System. The banking sector is strong, with robust levels of capital and liquidity, the report noted. "U.S. banks are well positioned to continue to support a growing economy," the report stated. As of the fourth quarter of last year, over 99 percent of all banks were well capitalized. Aggregate common equity tier 1 (CET1) risk-based capital ratios were about 13 percent for both large and small banks, which is roughly the same level from a year earlier.
• Regulatory Updates. The report flagged pending prudential regulatory changes, including the Basel capital proposal and GSIB surcharge modifications.
• Supervision Reform. The Fed also noted that it is enhancing the effectiveness of its supervisory process, including by focusing examination on material risks and by its reforms to the LFI ratings framework. The Federal Financial Institutions Examination Council also proposed changes to the CAMELS ratings system recently, the report notes.
• Ratings Trends. As of the end of 2025, most large banks supervised by the Fed were deemed "well-managed" under the LFI ratings framework, the report notes. Following changes to the LFI ratings system adopted in January 2026, the proportion of large banks deemed well-managed increased based on a revised definition.
• Matters Requiring (Immediate) Attention. The Fed noted that it is still conducting the second phase of its two-phase review of MR(I)As and has closed or downgraded to observations MR(I)As that do not align with the Fed's Statement of Supervisory Operating Principles. The report indicated that the number of outstanding MR(I)As for all institutions declined in 2025, with the majority of remaining outstanding MR(I)As for large financial institutions related to governance and controls.
• Supervisory Priorities. From mid-2025 through 2026, the Fed has prioritized supervisory reviews of liquidity, capital and operational and cyber resilience, according to the report. "To eliminate duplicative examinations, Federal Reserve examiners have increased reliance on supervisory work by the FDIC or OCC for the depository institution subsidiaries of large financial institutions," the report said. The report further noted that supervisors will not be duplicating validation work when a firm's internal audit function has been assessed to be effective and has validated remediation efforts.
• Horizontal Reviews. Large bank horizontal reviews have evolved in line with the Fed's new supervisory approach. Reviews will be more targeted and tailored; larger, more complex and higher-risk banks will receive greater supervisory scrutiny; banks will be evaluated relative to "supervisory expectations and safety and soundness" rather than subjective "best practices"; results of horizontal reviews, including comparisons, will be confidentially disclosed to participating firms; and reviews will avoid duplicating other regulators' examinations.
• Bank Applications and M&A. The report noted that it received 942 applications for transactions, including M&A, and to engage in new activities, an increase from the 807 applications received in 2024 and 752 in 2023. With respect to M&A applications, the report noted that the average processing time decreased to 85 days in 2025 from 101 days in 2024. The processing times for applications requiring board action similarly decreased in 2025 as compared to 2024.

Judge Blocks Illinois Interchange Law After OCC Preemption Determination

A federal judge on Monday blocked Illinois' Interchange Fee Prohibition Act restricting interchange fees on the tax and tip portion on restaurant tabs for national banks and payment card networks. U.S. District Judge Virginia Kendall's decision was based on the OCC's move to preempt the law. The ruling "recognizes that federal law protects critical elements of the national payments system from conflicting state requirements," banking trade group plaintiffs said in a joint statement Monday. "The decision will spare millions of Illinois businesses and citizens from payment chaos." The OCC recently issued an interim final rule, which will take effect on June 30, preempting the Illinois law. This week, Colorado Governor Jared Polis vetoed legislation that would have blocked interchange fees on taxes.

Traversing the Pond

Here's the latest in international banking policy.

• ECB Previews Next Steps on Bank AI Risk Scrutiny. ECB board member Frank Elderson this week previewed next steps ahead for the central bank's oversight of the risks associated with new AI models. "As a next step, we will send a so-called 'dear CEO letter' to all banks in which we aim to ask banks to take proactive measures to ensure the continued robustness and security of their systems in the face of these transformative challenges and will follow up with individual banks in a targeted manner," Elderson said on Wednesday. The UK Prudential Regulation Authority also recently sent a bank CEO letter on stablecoins and crypto tokens communicating its approach to those exposures.
• European Commission Adopts Market Risk Capital Adjustment. The European Commission recently published and adopted the targeted temporary FRTB adjustment package, including a capital-relief multiplier, with stated goal of preserving EU banks' competitiveness.
• UK Lawmakers Call for Rethink of Stablecoin Restrictions. A cross-party House of Lords committee urged the Bank of England this week to reconsider proposals to cap the amount of stablecoins held by individuals and businesses and to require issuers to back coins with non-interest-bearing deposits. The lawmakers warned that overly stringent requirements could hinder the development of a pound-backed stablecoin market.
• ECB's Best Response to Stablecoin Risks is CBDC, Schnabel Says. ECB Executive Board member Isabel Schnabel said the central bank's best response to the risks of stablecoins is to ensure that public money remains the anchor of the banking system, embracing a CBDC strategy. "Central banks and regulators need to be ready to adapt regulation, monetary policy implementation and payment infrastructure in an agile manner to safeguard financial stability, preserve monetary control and anchor their currency's role in the digital age," Schnabel said at a Bank of Korea conference.

Member News

Fifth Third Launches Anti-Scam Feature

Fifth Third Bank this week announced the launch of Report Phishing, a feature within the bank's app that allows customers to identify and report bank impersonation scams quickly. Bank impersonation scams represent one of the fastest-growing forms of financial crime. The Report Phishing feature enables customers to submit suspicious texts, emails or social media messages and receive confirmation on whether they are fraudulent. Since its soft launch in January, the Report Phishing feature has played a key role in detecting malicious activity and stopping scams: nearly 25% of user-submitted content has been flagged as fraudulent.

American Banker Releases 'Most Innovative People in Finance' Rankings

The American Banker Most Innovative People in Finance rankings for 2026 included several senior executives from BPI member banks, including Marco Argenti of Goldman Sachs, Jennifer Barker of BNY, Lori Beer of JPMorganChase, Umar Farooq of J.P. Morgan, Derik Farrar of U.S. Bank, Bryan Ford of Regions, Rushira Ghosh of TD Bank, Hari Gopalkrishnan of Bank of America, Reetika Grewal of Wells Fargo, Bobby Grubert of RBC, Steve Hagerman of Truist, Pam Habner of Citi, Thomas Halpin of HSBC, Gill Haus of JPMorganChase, Carol Juel of Synchrony, Nikki Katz of Bank of America, Jon Lofthouse of Citi, Laide Majiyagbe of BNY, Paul Margarites of TD Bank, Mathew Mehrotra of BMO, Kristin Milchanowski of BMO, Donna Milrod of State Street, Sathish Muthukrishnan of Ally, Matthew Parker-Jones of Scotiabank, Michael Pizzi of Morgan Stanley, Stephen Randall of Citi, Michael Ruttledge of Citizens, Mohan Sankararaman of First Horizon, Jude Schramm of Fifth Third, Dilip Venkatachari of U.S. Bank, Dominic Venturo of U.S. Bank, Maksims Volkovs of TD Bank, Chris Ward of Truist, Carolyn Weinberg of BNY and Ather Williams III of Wells Fargo. Check out the full list here.

Upcoming Events

• 6/9/2026: HFSC Subcommittee on Oversight and Investigations Hearing: "Converging Criminal Enterprises: Chinese Money Laundering Networks and Cartel Financing in the U.S. Financial System"
• 6/12/2026: HFSC Task Force on Monetary Policy, Treasury Market Resilience and Economic Prosperity Field Hearing on Examining the Structure of the Federal Reserve System
• 6/24/2026: HFSC Hearing: Future of Payments: Promoting Innovation and Fair Markets