BPInsights: October 25, 2025

Federal Reserve Lifts Veil on Stress Test Models

The Federal Reserve issued a significant proposal today to improve the accuracy and transparency of its stress testing models and the stress testing framework more generally. Stress testing is the most risk-sensitive component of the regulatory capital regime and directly affects the cost and availability of loans for American households and businesses. Erratic stress test results based on opaque and confusing methodologies damage the banking system without making it safer. Yesterday's proposal seeks to remedy these problems, yielding a more rational allocation of bank capital and, thereby, supporting financial resilience and U.S. economic growth.

The Bank Policy Institute, the American Bankers Association, the Ohio Bankers League and the Ohio Chamber of Commerce (the associations) issued a joint statement.

In December 2024, we initiated litigation because the Federal Reserve was operating its stress test in violation of the Administrative Procedure Act and due process. As a result of today's proposal, not just banks but all interested parties will have the opportunity to review models of great consequence for the U.S. economy and provide informed comment on how those models could be improved to better reflect risk. The flaws in supervisory models and lack of transparency have caused unnecessary volatility in capital requirements and imposed unwarranted costs on the economy by reducing market liquidity, limiting the availability and increasing the cost of credit, and ultimately slowing job creation and economic growth. Today is not just a good day for the rule of law but also a good day for economic growth.

Today's proposal also sets the Federal Reserve on a path toward permanent improvements to the models and the Federal Reserve's process for conducting annual stress tests. Going forward, we expect the Federal Reserve to consider the public's comments and finalize rules that will ensure that in 2026 and future years, the stress tests are conducted in a manner more reflective of stress tests' importance to the economy.

The purpose of the Federal Reserve's stress tests is not just to determine whether a bank "passes" or "fails," but to set the minimum amount of capital each bank must hold. These requirements are driven by complex models that, until now, have been kept secret. The U.S. Constitution and the Administrative Procedure Act require agencies to give public notice and an opportunity to comment on significant regulations. After years of advocating for greater transparency, the associations filed a lawsuit in late 2024.

Yesterday's announcement:

• Discloses the stress test models and invites public comment;
• Discloses the proposed stress test scenario for 2026 and invites public comment on that proposed scenario;
• Establishes a process to solicit public feedback on the annual stress test scenarios and future changes to the models;
• Seeks comment on the scenario design framework; and
• Introduces more objective standards, including for the global market shock.

The associations are reviewing yesterday's proposal and may agree to extend the litigation stay as the Federal Reserve works toward fulfilling its commitments to the public and the federal district court overseeing the litigation.

Three Things to Watch Next Week

• The Money 20/20 conference commences in Las Vegas, featuring a debate on the 1033 rule between BPI General Counsel John Court and Financial Technology Association CEO Penny Lee.
• The Federal Reserve Bank of Dallas hosts a conference on the evolving landscape of bank funding, featuring FDIC Acting Chair Travis Hill, Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack. BPI Deputy Head of Research Scott Frame will moderate a panel.
• The Senate Banking Committee will hold a hearing Thursday on several nominees including Travis Hill to be chair of the FDIC.

Five Key Things

1. BPI Supports CFPB Realigning Section 1033 Rule with the Law

BPI responded this week to a CFPB advance notice of proposed rulemaking revisiting the Biden Administration's Personal Financial Data Rights Rule under Section 1033 of the Dodd-Frank Act. The effort aims to address serious legal deficiencies in the current rule that would endanger consumers' sensitive financial data. The rule would also disrupt the existing robust data-sharing arrangements between banks and fintechs that allow consumers to access the apps and services of their choice.

BPI's submission reiterates fundamental problems with the rule and areas where the Biden CFPB exceeded its legal authority, a fact the current CFPB leadership has acknowledged.

"Individual consumers should have secure and easy access to their financial data, and decades of investments from banks and fintechs have delivered exactly that. The evidence is on every phone and personal device across America. The Biden Administration didn't deliver open banking; it disrupted it by introducing regulatory uncertainty and security risks to a system that already works. The CFPB should right this wrong and deliver a free-market solution that follows the law and places consumers' financial data security first." - Paige Pidano Paridon, Executive Vice President & Co-Head of Regulatory Affairs

Congress passed Section 1033 of the Dodd-Frank Act so that consumers could easily obtain access to their financial data. In the 14 years between the law's passage and the CFPB's issuance of the rule, technology changed, but the law's intent did not. BPI supports the CFPB's decision to revisit the rule and narrow it to reflect Congress's intent. The letter calls on the CFPB to preserve individual consumers' ability to access and share their data securely and stay within the limits of the authority granted under Section 1033.

2. Waller Previews 'Skinny' Master Accounts Plan

At the Fed's payments innovation conference this week, Federal Reserve Governor Christopher Waller described a "'skinny' master account" that the Fed may offer to nonbanks such as fintechs. "The account would provide access to the Federal Reserve payment rails while controlling for various risks to the Federal Reserve and the payment system," Waller said.

• Features. Such accounts would not receive interest on their reserve balances, and balances could be capped, Waller said. They also would not have "daylight overdraft privileges" - if their balance hit zero, payments would be rejected, he said. In addition, they would not be able to access the Fed's discount window or "have access to all Federal Reserve payment services for which the Reserve Banks cannot control the risk of daylight overdrafts."
• Prototype. "I want to be clear that this is just a prototype idea to provide some clarity on how things could change," Waller said.
• Learn More About Master Accounts. To learn more about Fed master accounts, view BPI resources here.

3. Waller: Stablecoins Are Not Supposed to Pay Interest

This week, Governor Waller said he considers stablecoins a "pure payment instrument," rather than the equivalent of an interest-bearing deposit. "It's not an investment vehicle; it's not a time deposit where you're holding it to earn interest," Waller said in a Crypto in America interview on the sidelines of the Fed's payments conference. Waller was asked about the prospect of stablecoins paying interest, a key aspect of the debate on crypto market structure legislation. Waller dismissed comparisons of stablecoin interest to credit card rewards. "There's a couple of aspects of that [that] are very different than a stablecoin giving you interest just to hold on to it," he said. "I don't want to think about paying interest on these payment accounts. It's not supposed to be an account for somebody to hold stablecoins and earn interest. It's supposed to be a payment. Payments are typically a fast, high-velocity thing. You're not holding it to earn interest."

4. Senate Bill Would Help Bring AML Reporting into 21st Century

Legislation sponsored by Sen. John Kennedy (R-LA) and Banking Committee Chairman Tim Scott (R-SC) would modernize thresholds for two key anti-money laundering requirements. The bill, known as the STREAMLINE Act, would raise the threshold for currency transaction reports from $10,000 to $30,000, and that for suspicious activity reports from $2,000 and $5,000 to $3,000 and $10,000. The CTR threshold has not been updated since the 1970s, when $10,000 in cash was a much more meaningful sum. The bill would require the Treasury Department to adjust these thresholds every five years for inflation. It aims to reduce duplicative paperwork and prevent unnecessary account closures.

• BPI View. BPI has called for updating the CTR threshold and raising the bar for SAR filings, which cause significant resource burdens on banks and provide little value to law enforcement investigations.

5. Payment Stablecoins Aren't Just Crypto Credit Cards. Here's Why

At a conference this week, Fifth Third CEO Tim Spence shed light on why stablecoins aren't comparable to credit cards. Spence participated in a panel at the Fed's payments innovation conference on stablecoin use cases alongside Paxos' Charles Cascarilla, DolarApp's Fernando Terres and Circle's Heath Tarbert. "One of the things that drives me nuts is whenever we try to compare the cost of accepting a stablecoin to the cost of accepting a credit card payment, because if the decision on what sort of payment to accept was entirely in the hands of the merchant … they wouldn't be accepting credit cards today," Spence said. "The reason they accept credit cards is because people want to pay with them, and people want to pay with them because they want float or credit or rewards or the consumer protection associated with the ability to charge back a payment that you didn't make."

• Road to Nowhere? Spence expressed the view that "we could spend a lot of [time trying] to replicate the feature functionality of all the different legacy payment methods, and get nowhere, because what would happen is the cost to accept a stablecoin would have to go up in order to support all of these sorts of benefits, and in turn, you wouldn't see any sort of value shift. … Trying to get every rail to do everything doesn't seem to me to be the right long-term solution."
• Interest by Any Other Name. Spence emphasized the need to close the GENIUS Act loophole on stablecoins paying interest. "It's clear to me that the intention behind the law was to prevent stablecoins from earning interest," Spence said. "It's not clear to me, based on the behavior in the market, that everybody intends to abide by those rules, and if stablecoins are allowed to pay interest, they pose a threat that is equivalent to, but potentially far greater than, money market mutual funds did when they were introduced many, many years ago, and that would have a direct impact on … credit formation."

In Case You Missed It

Stablecoins, Supervision: The Latest from OCC's Gould

OCC Comptroller Jonathan Gould spoke this week at an American Bankers Association event, where he discussed several core issues in bank regulation. Here are some highlights.

• Stablecoin Run Prospects. Gould suggested that if payment stablecoins had a "material impact" on bank deposits, "I don't think it would happen overnight." Elected officials, the banking industry as well as "the federal banking agencies, I think, would have something to say about that. Certainly, if there's a material flight of deposits from the banking system, that sure sounds to me like safety and soundness concerns."
• Supervision and Material Risks. Gould described the banking agencies' work to reform bank supervision to focus on material risks. "If you're trying to be everything to everyone, you run the risk of being unsuccessful at your actual statutory mission, which is really safety and soundness and material financial risks," he said. The agencies are "hard-wiring in regulation a definition of unsafe and unsound conditions and practices," he noted, "as well as defining under what terms we can issue Matters Requiring Attention." These efforts are not meant to weaken supervision, but rather to "focus it, to make it stronger on what matters." One lesson from Silicon Valley Bank's failure was "that [examiners] were failing to elevate and escalate the things that mattered most," he said.

Should Banks Hold Capital for an Asteroid Strike?

Recent ECB remarks suggest some regulators consider climate risks at the same magnitude as the Global Financial Crisis and want banks to hold capital against these risks. However, the projection of a climate-driven global economic depression is based on assumptions about weather disaster scenarios that are highly implausible. The projection comes from the Disasters and Policies Scenario designed by the Network for the Greening of the Financial System - an international consortium of central banks and other regulators. A new BPI analysis explains why the economic crash envisioned by this scenario is probably less likely to occur than a civilization-destroying asteroid strike.

• Everything Everywhere All at Once. The scenario envisages multiple rare, severe events occurring simultaneously, assuming that in 2026 a combination of droughts, heatwaves and wildfires hits six regions around the world, followed by a combination of floods and storms in the same six regions in 2027.
• Bottom Line. An effective stress test should be severe, but plausible.

Drew Ruben Joins BPI Regulatory & Policy Affairs Team

The Bank Policy Institute this week announced the hiring of Drew Ruben as Senior Vice President and Associate General Counsel on the Regulatory and Policy Affairs team. Drew started the position on Oct. 22.

"Drew brings practical experience and deep regulatory expertise from both the public and private sectors," said Paige Pidano Paridon, Co-Head of Regulatory Affairs. "His fluency in payments innovation policy will enhance BPI's work on payments issues at a critical juncture in this policy area. We're delighted to welcome him on board."

Drew joins BPI from the Federal Reserve Board, where he focused on payments innovation and banking regulation as Senior Counsel in the Legal Division. Prior to the Fed, he served as an attorney in the financial institution groups at Davis Polk & Wardwell and Covington & Burling. Drew, a graduate of Yale College and Yale Law School, began his career as a management associate at Bridgewater Associates and co-founded a retail coffee company.

The Crypto Ledger

Here's the latest in crypto.

• Market Structure Bill. As market structure legislation faces an uncertain timetable in the Senate, the issue of prohibiting stablecoins from paying interest has emerged as a sticking point. The GENIUS Act banned stablecoin issuers from paying interest directly but did not ban interest payments for exchanges or affiliates, leaving a critical gap. Sen. Mike Rounds (R-SD) said recently: "We want to make clear, very clear that the intent of the original language of the [stablecoins bill] was that they could not offer interest," he said. "If there's a way around that, then the only question is, do you fix that by rule, through Treasury, or do you have to fix it with a specific piece of legislation? I'm open to either one." Sen. John Kennedy (R-LA), another Banking Committee member, called for two more hearings on the market structure bill. "I hope we'll move it quickly, but I hope we'll move deliberately," he said.
• Crypto CEOs on Capitol Hill. Crypto industry CEOs were on Capitol Hill this week seeking to expedite the market structure legislation after discussions stalled in the Senate.
• Coinbase Buys Blockchain Fundraising Platform. Coinbase announced this week it has purchased blockchain fundraising platform Echo for about $375 million. The acquisition is part of the exchange's effort to create a "full-stack solution" for crypto investors.
• BoE Eyes 2026 for Stablecoin Rules. The Bank of England plans to launch a consultation on stablecoin regulation on Nov. 10 and will aim to have rules in place by the end of next year, aiming to align with the implementation of U.S. rules on the topic, according to Bloomberg.

Traversing the Pond

Here's the latest in international banking policy.

• New BAFA Paper. The British-American Finance Alliance, a coalition of 22 trade associations including BPI, published a paper this week titled "Finance for Growth: A Shared U.S.-UK Prosperity Agenda." The paper called for regulatory and policy actions that would strengthen the partnership between the two nations and support economic growth. Policy recommendations included the U.S. and U.K. working together on interoperable digital assets regulation; supporting the free flow of data across borders; and assessing potential cross-border impacts of any proposed U.S. approach to Basel Endgame implementation, "recognizing that one of the original objectives of the Basel III reforms was to improve comparability in capital requirements across jurisdictions."
• BoE's Woods on 'Acclimatized' Banking System. Sam Woods, deputy governor for prudential regulation and CEO of the Prudential Regulation Authority, described the UK banking system in an "acclimatized" state after the Global Financial Crisis, with robust capital and liquidity. In a recent Mansion House speech, Woods said profitability and resilience can coexist, and observed the banking system's success in weathering the collapses of Credit Suisse and Silicon Valley Bank. "Now you are only as good as your last expedition when it comes to climbing mountains, and there is always a wild card element to these situations - but we are demonstrably better equipped than we used to be," he said. Still, he warned of geopolitical, cyber and technological risks, among others. He also expressed concern about the notion of taking higher-rated government bonds out of the leverage ratio.
• ESRB Flags Stablecoin Risks. The European Systemic Risk Board published a report this week on systemic risks from cryptoassets and issued recommendations on stablecoins. The organization expressed concern about financial stability risks from stablecoins, particularly those issued jointly in the EU and third countries. Such stablecoins could amplify runs within the EU in the event of redemptions, and restrictions imposed by third-country authorities on reserve transfers between jurisdictions could "exacerbate these risks during periods of stress."
• Bailey Warns of Private Credit 'Alarm Bells.' Bank of England Governor Andrew Bailey cautioned this week about "alarm bells" ringing in the private credit sector. He compared the boom in private credit to subprime debt leading up to the Global Financial Crisis. "I said, 'Well, we're not playing that movie again, are we?'" Bailey said during a hearing of the House of Lords' Financial Services Regulation Committee. "If you were involved before the financial crisis and during it, alarm bells start going off at that point." The BoE plans to subject the market to stress tests.

BPI Members Stand Ready to Help Those Affected by Government Shutdown

BPI member banks offer various resources and initiatives to support customers affected by the current government shutdown. Here's a guide to bank resources for furloughed employees, including fee waivers, loan payment deferral options and penalty-free CD withdrawals.

BNY Workforce Includes 100 'Digital Employees'

BNY has more than 100 "digital employees," complete with human managers, email addresses and performance reviews. They work on payment remediation, engineering and code repair, among other issues. The AI "staffers" are part of the bank's unique approach to the technology, according to CEO Robin Vince. "I understand very much that people view head count changes as the consequence of AI adoption. We don't think about it that way," Vince said. "We think of it as a superpower, and we want all of our people and the whole company to be equipped with that superpower."