BPInsights: January 17, 2026

President's Credit Card Rate Cap Proposal Draws Lawmaker Opposition

The President late last week called for a yearlong 10 percent cap on credit card interest rates. The proposal sparked immediate concerns from lawmakers, business leaders and academics warning about the potential consequences for the economy and consumers' ability to obtain affordable credit, a point highlighted in a joint statement by a coalition of trade associations representing banks of all sizes. Nearly 90 percent of current cardholders - 175-190 million American cardholders - would effectively lose access to credit cards nationwide under such a rate cap, according to an Electronic Payments Coalition study. Citigroup CEO Jane Fraser warned about the economic consequences this week: "Studies in the US have shown a vast majority of consumers and businesses would lose access to credit cards," Fraser said. "They'd be forced to pursue more predatory alternatives, and you'd only be left with the wealthy having access to credit cards. And nobody wants that."

• Shortly after the proposal was previewed, the President also expressed support for the Durbin-Marshall credit card mandate. A broader coalition of bank and credit union associations emphasized the dire consequences of the Durbin-Marshall credit card mandate in separate statement this week.
• Curtailing Credit. Because it would impede banks' ability to price in higher default risk through interest rates, the proposal would likely require them to cut credit lines in order to manage their risk. It could also lower consumers' credit scores and push them toward less regulated, predatory forms of credit, like payday lending.
• Implications for the Economy. Consumer credit cards were responsible for $3.6 trillion in spending in 2024, equivalent to roughly 12 percent of U.S. Gross Domestic Product. If consumers lose access to credit, it could have significant negative repercussions for the economy, especially for the retail and travel sectors. In 1980, the Carter administration imposed temporary credit controls that effectively capped certain forms of consumer credit, including credit cards. Issuers responded by tightening terms and introducing new fees to offset lost revenue. Federal Reserve analysis found the program contributed to a sharp pullback in consumer credit and coincided with significant declines in retail spending, worsening the depth of the 1980 recession.
• Congressional Concerns. Such a proposal would almost certainly require congressional action, and among lawmakers, the issue is far from a slam dunk. The Senate legislation has only three cosponsors and the House version of the bill is being led by Rep. Alexandria Ocasio-Cortez (D-NY). "The president is the ideas guy," House Speaker Mike Johnson (R-LA) said this week in response to the President's remarks. "I wouldn't get too spun up about ideas that are out of the box, that are proposed or suggested." Senate Majority Leader John Thune (R-SD) said: "That's not something I'm out there advocating for - let's put it that way." Sen. Thom Tillis (R-NC) said he is "totally against" the rate cap. House Financial Services Committee Chairman French Hill (R-AR) stated on an interview with Bloomberg, "This proposal is a price control, and I have heard from Republicans in the House who have concerns about it."
• Commentary. A Wall Street Journal editorial this week, which noted the unusual common ground on the proposal between the President, Alexandria Ocasio-Cortez and Bernie Sanders, pointed out the severe consequences of "price fixing" in the credit card market. "Capping rates at 10% would inevitably force issuers to slash rewards and curtail credit," the editorial warned. Similar concerns were expressed in Bloomberg and Washington Post editorials, and former National Economic Council Director Larry Kudlow also cautioned against "price fixing," which he said is a tactic doomed to fail.
• Bank Views. Bank leaders laid out the proposal's likely business impact during earnings calls this week. Bank of America CEO Brian Moynihan stated, "…if you bring the caps down, you're going to constrict credit, meaning less people will get credit cards. And the balance available to them on those credit cards will also be restricted. And so you have to balance that against what you're trying to achieve from the affordability." JPMorgan CFO Jeremy Barnum said: "People will lose access to credit, like on a very, very extensive and broad basis, especially the people who need it the most, honestly." Wells Fargo CFO Mike Santomassimo warned that "there would be significant negative impact of credit availability for a wide spectrum of people." Citi's Chief Financial Officer Mark Mason warned that a "cap would likely result in a significant slowdown in the economy."

Five Key Things

1. Crypto Market Structure Votes Delayed

The Senate Banking Committee this week delayed a much-anticipated markup on crypto market structure legislation that has driven debate for months among lawmakers and industry. The markup, which had been scheduled for Thursday, was postponed by Committee Chairman Tim Scott (R-SC) shortly after Coinbase CEO Brian Armstrong announced that the firm was withdrawing its support for the bill. Armstrong expressed opposition to DeFi prohibitions, restrictions on tokenized equities, "erosion of the CFTC's authority" and draft amendments that would "kill rewards on stablecoins." A number of other matters, including ethics and insider trading prohibitions sought by Senate Democrats, also remain sticking points in the negotiations. Armstrong's announcement was quickly followed by prominent industry voices urging Congress to stay the course and advance the bill through the markup process:

• Brad Garlinghouse: "While long-overdue, this move by @SenatorTimScott and @BankingGOP on market structure is a massive step forward in providing workable frameworks for crypto, while continuing to protect consumers. Ripple (and I) know firsthand that clarity beats chaos, and this bill's success is crypto's success. We are at the table and will continue to move forward with fair debate. I remain optimistic that issues can be resolved through the mark-up process." (source)
• Dante Disparte: "A durable financial law that is in the national interest requires bipartisan support. The landmark GENIUS Act is such a law, which is advancing apace in the rulemaking process. We encourage Congress to remain engaged in a bipartisan manner on advancing crypto market structure rules that promote rules-based competition in broader digital assets markets - without reopening the GENIUS Act. The opportunity to do with market structure what was done with GENIUS will be missed if negotiations and bipartisanship breaks down." (source)
• The Digital Chamber: "The Digital Chamber strongly supports advancing market structure legislation and remains committed to seeing a bill signed by @POTUS this year." (source)
• Cody Carbone, Digital Chamber: "We will engage relentlessly until legislation our members support reaches the President's desk." (source)
• Key Issues. A subject of significant debate in the bill has been the degree to which it prohibits payment of interest. BPI has emphasized that stablecoin interest payments - whether direct or indirect - would destabilize the financial system through deposit flight and other risks. Several Senators filed amendments that aim to further restrict payment of interest to varying degrees, including bipartisan amendments authored by Senator Thom Tillis (R-NC) and Senator Angela Alsobrooks (D-MD), as well as amendments authored by Senator Jack Reed (D-RI), Senator Lisa Blunt Rochester (D-DE) and Ranking Member Elizabeth Warren (D-MA).

2. Powell Under Threat of Criminal Indictment

The Department of Justice issued grand jury subpoenas to the Federal Reserve on Jan. 9, threatening to indict Chair Jerome Powell over his testimony before the Senate Banking Committee last year regarding the renovation of the Fed's office buildings. In response to the action, Powell released a statement in which he described the subject of the indictment threat as a pretext: "The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President. This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions-or whether instead monetary policy will be directed by political pressure or intimidation."

• Context. The DOJ accused Powell of misleading Congress about the cost of the building renovations during his testimony at a 2025 oversight hearing. The allegations come as Powell's term as chair draws to an end in May and as the President has criticized him publicly on multiple occasions about the FOMC's interest rate decisions.
• Reactions. Lawmakers, prominent editorial boards, bank CEOs, regional Fed officials and international central bankers defended Powell in public commentary this week.
• No Plan to Fire Powell. Despite the indictment threat, President Trump said this week in a Reuters interview that "I don't have any plan to do that" when asked if he would fire Powell. He continued: "Right now, we're [in] a little bit of a holding pattern with him, and we're going to determine what to do. But I can't get into it. It's too soon. Too early."

3. 5 Takeaways from Bill Nelson's Testimony on the Fed's Balance Sheet

The House Financial Services Committee Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity held a hearing Wednesday, titled "Striking the Right Balance Sheet". Bill Nelson, BPI executive vice president and chief economist, testified, examining the systemic costs of the Federal Reserve's "floor system," including the deterioration of private interbank markets and the lack of a natural constraint on the Fed's size.

Here are some takeaways from the hearing:

1. The Fed's current "floor system" weakens financial stability by increasing discount window stigma.

Task Force Chairman Frank Lucas (R-OK): Dr. Nelson, the Fed maintains that a floor system provides more rate control, safer banking system, a more resilient Treasury market. You share that view. What are the risks? What are the downside risks of a large balance sheet?

Bill Nelson, BPI: Thank you, Mr. Chairman. No, I don't share that view. There's, in fact, generally widespread agreement across the folks that have studied this that both a scarce reserve system and an ample reserve system provide good interest rate control in normal times. Now, it's true that when the Fed has to expand its balance sheet in response to a crisis, and reserve balances go up, what happens at that time is a corridor system naturally becomes a floor system. And the ECB indeed moved in and out of a corridor and floor system with no difficulty during the European banking crisis, and that demonstrates that it's not necessary for the Fed to operate a floor system all the time with the attendant costs in order to be able to handle times of a crisis. Moreover, it's not true that the banking system is more resilient under a floor system. In fact, as we saw, one of the things that a floor system does is that it increases discount window stigma, and it reduces the incentive for banks to be prepared to use the window. And as we saw in August 2023, the banking system is much less resilient if the banks are not prepared to use the discount window.

2. Recent supplementary leverage ratio reform improved banks' Treasury market intermediation, but more work is needed.

Rep. Scott Fitzgerald (R-WI): What concrete metrics should Congress use to decide when the Fed's balance sheet is too large in size relative to GDP, reserve balances relative to bank assets, market functioning indicators maybe, or taxpayer exposure? And if none of these work, what measurable limits should replace that, I guess is the question?

…

Bill Nelson, BPI: So, while it's one way that the Federal Reserve's large balance sheet does distort Treasury markets is through the creation of reserve balances, which tends to make leverage ratio requirements more binding on the part of the banking system, because leverage reserve balances are a low risk, zero risk weight asset when they're very high leverage ratios tend to be more binding. That discourages banks and the broker dealers owned by bank holding companies from intermediating in Treasury markets, because that requires them to take on similar low risk assets. Now the banking agencies have addressed that to some extent recently by adjusting the supplementary leverage ratio requirement, but there remains the tier one leverage ratio requirement, which is binding on other banks and continues to discourage Treasury market intervention, intermediation.

3. It is difficult for the Federal Reserve to shrink its balance sheet because reserve demand contains an upward ratchet.

Rep. Mike Flood (R-NE): If the Federal Reserve already has a $6 trillion balance sheet, when the next recession hits, the Federal Reserve will be more, will need more assets on top of their already elevated holdings. My concern is whether this is sustainable long term. If quantitative easing remains a tool in the Federal Reserve's toolbox in the event of economic turbulence, wouldn't a larger balance sheet in good times blunt the economic impact of that tool when things get tough? My first question, Dr. Clouse, Dr. Nelson, Dr. Schrager, would you mind reacting to that sentiment? How should we be thinking about the implications of a larger Federal Reserve balance sheet for future bouts of quantitative easing?

Bill Nelson, BPI: So, I think the big challenge, the particular challenge, is that once, every time the Fed increases its size, that size gets locked in, and it has to increase it further. So, for example, as I noted in 2008, the staff judged that 30 billion was needed to conduct policy of the floor system. Now it's 3 trillion. But importantly, when the Fed decided to adopt a floor system, the staff estimated that it would require 1 trillion in reserves, and at that time, in large part because Chair Powell wanted to be able to demonstrate that QE could be reversed, he indicated that, "Well, 1 trillion. I will support it at that level, but if it turns out to be 1.5 trillion, then I'll have buyer's remorse." 11 months later, the staff revised its estimate of the amount needed to 1.5 trillion. So, I think that that's the fundamental tendency for the balance sheet to just have to keep growing is part of the severe problem with their approach.

4. Adjustments to liquidity regulations, including recognizing banks' use of the discount window as part of those requirements, could help to reduce the demand for reserve balances.

Task Force Chairman Frank Lucas (R-OK): [B]anking regulations like liquidity coverage ratio resolution requirements and liquidity stress test incentivize financial institutions to hold reserves, growing the Fed's balance sheet. Should the regulators contemplate the impacts liquidity requirements have on the size of the Fed's balance sheet? What regulations need to be adjusted?

Bill Nelson, BPI: Yes, they should. So last week, we conducted a survey of our member banks and published the results of that survey this morning on what leads banks to demand reserve balances and what policies could change them. The things that the banks listed was first and foremost their own risk management, but then also needing to pass liquidity requirements as well as discount window stigma, and they indicated that the things that would most effectively allow them to reduce their demand for reserve balances was to recognize discount window capacity in the liquidity requirements to which they're subject.

5. The Fed's "unbounded" balance sheet creates an "attractive nuisance" that erodes independence.

Rep. Troy Downing (R-MT): There's been a lot of discussion this Congress about maintaining the independence of the Fed, which I strongly support. This question is for Dr. Schrager and for Dr. Nelson: Is it easier for the Fed to lose its independence if its balance sheet is too large, and if so, are there policy recommendations that you have for Congress to consider?

Bill Nelson, BPI: I do think that it puts risk to the Fed's independence. Back the way the Fed used to conduct policy, reserve balances were extremely low, so the Fed could get no bigger than the public's demand for currency in the Treasury's general account. But, if the Fed tried to get bigger, it would lose control of monetary policy under the old regime. Under the current regime, the Fed's balance sheet is effectively unbounded, and that makes it a more attractive target, as several FOMC participants have indicated, for political manipulation. And we've seen that with the CARES Act, which directed the Fed to extend credit to middle market firms, rather than Congress doing so itself and the Fed did. We saw it with the FDIC borrowing from the Fed, rather than the Treasury, which was bound by the debt limit at that time, to fund its bailouts of uninsured depositors in the spring of 2023.

4. What Drives Banks' Demand for Reserves?

Banks' demand for reserves plays a critical role in the Fed's implementation of monetary policy and banking system functioning. It also determines how large the Fed has to be. Reserve demand is driven by many factors, including liquidity requirements and discount window stigma. To understand the current landscape of reserve demand, what drives it and how it is changing, BPI conducted a survey of bank treasurers. The survey asked:

• What are the current factors determining demand for reserves?
• If your bank has reduced demand over the last two years, why?
• What factors could lead banks to reduce their demand for reserves in the future?

Regulatory Factors. As flagged in a recent speech by Fed Governor Stephen Miran, regulatory requirements can exert significant influence over banks' demand for reserves. Through this interaction, regulation can drive or inhibit the implementation of monetary policy, with major economic implications. 

This note summarizes the results of BPI's survey.

5. President Endorses Credit Card Competition Act

After the President proposed a 10 percent, yearlong cap on credit card interest rates, he also expressed support this week for legislation sponsored by Sens. Roger Marshall (R-KS) and Dick Durbin (D-IL) - the Credit Card Competition Act (CCCA) - which purports to lower credit card interchange fees by forcing large banks to allow at least two unaffiliated payment networks to process transactions for their cards. The lawmakers reintroduced the bill this week. A broad coalition of bank and credit union associations emphasized the dire consequences of the Durbin-Marshall credit card mandate, which the President supports, in a separate statement this week.

• What's Next? Banking Committee Chair Tim Scott (R-SC) said this week that the committee would hold a markup on the bill in 2026, although a spokesperson later clarified that the panel would instead hold a hearing. Majority Leader John Thune (R-SD) said the Senate would likely vote on the Credit Card Competition Act at some point.

In Case You Missed It

The Crypto Ledger

Here's the latest in crypto.

• Stablecoin Deposits. The UK may decide to back stablecoin deposits like it protects those at banks, according to Bank of England Deputy Governor for Banking and Markets Dave Ramsden. Such decisions would be considered as part of the UK's proposals to regulate stablecoins. "In the longer term, trust in stablecoins may require some form of insurance scheme analogous to that which applies to bank deposits and a statutory resolution arrangement that ensures coinholders are preferred creditors in any insolvency process," Ramsden said during a speech in London. "To maintain trust in money, we are considering what failure arrangements are necessary for systemic stablecoins."
• Warren on Pension Funds, Crypto. Sen. Elizabeth Warren (D-MA) expressed concern to SEC Chair Paul Atkins in a letter this week about an executive order that would allow pension funds and retirement accounts to hold crypto assets. Warren said the action would endanger investors by exposing them to a volatile asset class. She also warned about a "tokenization loophole" in pending market structure legislation that she said would increase risks to retirement savings in combination with the executive order.

Traversing the Pond

Here's the latest in international banking policy.

• UK Capital Pushback. Sir John Vickers, former chair of the UK's post-Global Financial Crisis Independent Commission on Banking, criticized the Bank of England's recent decision to lower capital requirements in an article coauthored with David Aikman. Vickers and Aikman framed the decision, which was grounded in detailed economic research on optimal capital levels, as a "capital mistake" that was supported by "no compelling economic reason."

• Valuations and Resilience. Senior ECB official Luis de Guindos said recently that high market valuations of European banks reflect the resilience instilled in the banking system by sound ECB supervision. "If you look at the valuations of European banks since COVID it is obvious that there is something that, among all of us, we've put together properly and correctly - and they're taking advantage of that even though, for sure, they continue to complain," he said.

Things to Watch Next Week

• The House Financial Services Committee holds a markup on Thursday.

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Upcoming Events

• 1/22/2026: House Financial Services Committee Markup
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