Federal Deposit Insurance Corp. Vice Chair Travis Hill, poised to lead the agency, outlined his priorities, including minimizing the regulatory burden on banks, distancing the agency from climate-related rules and politically motivated oversight like Operation Choke Point, and fostering a friendlier environment for digital assets.
In his remarks — delivered to a crowd at the American Bar Association's Banking Law Committee Meeting on Friday — Hill shed light on the path forward for a key regulatory issue in banking: the Basel III endgame capital requirements set to be revisited under the Trump-era FDIC.
Introduced in 2023, the Basel III endgame
While left-wing opposition to the proposal — Chopra ally Sen. Elizabeth Warren, D-Mass.,
On Friday, Hill argued the rule still contains duplicative and contradictory requirements, particularly when it is viewed in concert with other federal prudential regulations. In particular, Hill said the proposal's Fundamental Review of the Trading Book — a metric for assessing market risks in banks' trading portfolios — overlaps with parts of the Federal Reserve's stress-testing regulatory requirements.
Hill cautioned that applying two Fed requirements for large banks — the Stress Capital Buffer and the Global Market Shock — alongside the Fundamental Review of the Trading Book could result in excessive regulation that would discourage banks from engaging in trading activities.
"The FRTB was intended to address the fact that the existing market risk framework does not sufficiently capitalize for tail-risk events, but in the U.S. this weakness is currently addressed by the GMS," he said. "Using both the point in time capital framework and the SCB to address these deep tail risks will make some of these activities uneconomical for banks to engage in, and as a result damage financial market functioning."
Hill also said the FDIC should adopt a more balanced approach to banks' relationships with tech companies, focusing on supporting banks' evolution while ensuring sound risk management.
In recent years, he said, the agency has leaned too heavily on restrictive processes, hampering progress. He said the FDIC should encourage flexible experimentation with new technologies without excessive regulatory hurdles, reinvigorate its innovation lab to engage with the private sector and hire more staff with expertise in emerging technologies.
Hill also suggested establishing a public-private standard setting body for fintech due diligence.
Clear guidance on fintech partnerships, artificial intelligence and digital assets is essential, as inconsistent enforcement has created uncertainty, he said.
"The FDIC and other banking agencies have issued a series of enforcement actions against banks that have adopted a partnership model [with fintechs]," he said. "I generally think a much better approach would have been to lay out our expectations clearly and transparently on the front end, with an opportunity for the public to comment and provide feedback, rather than go down the line hammering each bank one by one, forcing the industry to reevaluate its compliance approach after every new order."
On digital assets, Hill said the FDIC's overly cautious stance has stifled innovation, with
"A much better approach would have been — and remains — for the agencies to clearly and transparently describe for the public what activities are legally permissible and how to conduct them in accordance with safety and soundness standards," he said. "And if regulatory approvals are needed, those must be acted upon in a timely way, which has not been the case in recent years."
Another related issue Hill addressed evokes the debate over regulators pressuring banks to avoid servicing certain types of businesses. Recent
The debate around debanking began under the Obama administration wherein a series of policies known as Operation Choke Point were launched by the Department of Justice. Its goal was to discourage banks from doing business with high-risk industries, such as payday lenders, firearm dealers and online-casinos. The program leveraged the supervisory authority of federal regulators like the FDIC. Hill — long a critic of the policy — said the next administration should take a different approach.
"Over the past few years, there have been various accounts of individuals and businesses associated with the crypto industry losing access to bank accounts without explanation," he said. "Adopting a new approach to digital assets — and putting an end to any and all Choke Point-like tactics — are essential first steps."
Regulators also need to reevaluate their approach to implementing the Bank Secrecy Act, which incentivizes banks to close accounts under the threat of fines from the agency, Hill said
"It is also worth reexamining the policy of requiring banks to provide adverse action notices explaining the reasons why a customer is denied a loan, while at the same time often prohibiting banks from providing any reason if a customer's entire account is closed," he said. "These issues, along with others in the BSA realm, warrant attention and scrutiny during the next administration."
Hill criticized the Biden FDIC's focus on climate-related risks, asserting that U.S. banks have historically weathered natural disasters without systemic failures, and that such events often bolster banks through increased loan demand and capital inflows during recovery.
He said the FDIC's mandate is limited to ensuring the safety and soundness of financial institutions and that environmental issues are outside that purview. Hill called for the FDIC's withdrawal from the Network for Greening the Financial System and expressed doubt about the relevance of a proposed Basel Committee framework for climate-related financial risk disclosures. Hill said he expects the FDIC to resist implementing climate-focused disclosure requirements under new leadership.
On the supervisory side, Hill advocated that bank examiners focus less on procedural checklists and instead, on addressing targeted bank stability risks. He said the FDIC's current approach, while well-intentioned, leans too heavily on process-driven oversight.
"There are times when institutions have obvious, well-known management, governance, or
control issues that can potentially threaten the safety and soundness of the institution," he said. But today, these are outlier cases…[w]hat is far more common is for examiners to focus on a litany of process-related issues that have little bearing on a bank's core financial condition or solvency."
One example Hill cited was the FDIC's CAMELS rating system. Some banks, he said, have received downgrades on their marks with regard to market risk sensitivity risk despite being "relatively resilient to interest rate shocks. He said he is not convinced that the status quo has improved bank resiliency.
"[Procedural] criticisms often have little bearing on a bank's actual health or solvency, are a major distraction for examiners and banks and are contributing to crushing compliance costs, particularly for community and regional banks," he said. "We will need to make adjustments to how we implement the CAMELS rating system and to our examination manuals and we will need to modify how we train examiners."
Hill emphasized that while his remarks covered some of the most fundamental issues, the FDIC will address a number of other issues in 2025.
"There are many others I expect the FDIC to focus on in the coming weeks, months and years, ranging from merger policy, to de novo policy, to resolution readiness and planning, to liquidity, to what the agency discloses — or requires be disclosed — to the public and what the agency shields or prohibits from disclosure, to deposit insurance, to the FDIC's workforce culture, among many others."
