ABA Testifies Before Congress on Strengthening Bank Resilience and Modernizing Regulation

Hugh Carney, executive vice president for financial institutions policy and regulatory affairs at the American Bankers Association, will testify today before the House Financial Services Subcommittee on Financial Institutions during a hearing titled “Promoting the Health of the Banking Sector: Reforming Resolution and Broadening Funding Access for Long-Term Resilience.”

In his prepared testimony, Carney outlined four key policy recommendations aimed at making financial regulations “more predictable, transparent, and risk-focused while preserving the vibrancy and competitiveness of the American banking system”:

• Indexing Regulatory Thresholds: Carney emphasized the need to modernize outdated asset-based thresholds, noting that “indexing is a low-cost, high-impact reform that improves transparency, reduces arbitrary burden, and allows regulators to focus where the risk really is.” He cited the FDIC’s $500 million audit threshold, set in 1993, which now applies to 41 percent of banks—up from just 7 percent when it was introduced.

• Modernizing the Bank Resolution Framework: Carney called for reforms to the FDIC’s resolution process, including broadening the least-cost test, enabling greater community bank participation, and improving transparency in bidding. “Increasing the options in approaches to resolution simply builds on approaches already allowed under applicable law. ABA emphasizes that failed bank resolutions implicate multiple policy goals and multiple economic and community interests,” he said. “We urge Congress and the FDIC to work toward a framework flexible enough to take appropriate account of those goals and interests that go beyond resolution costs alone.”

• Ensuring Access to Stable Funding: Carney noted “it is critical that banks have access to stable funding sources and that statute, regulations and supervision related to funding and liquidity are aligned with modern banking, the marketplace for financial services, and reflect actual risk and risk management practices.” He urged Congress to repeal Section 29 of the Federal Deposit Insurance Act, stating that “this repeal would align prudential oversight with risk-based supervision, improve competitive neutrality, and enhance liquidity resiliency without sacrificing safety and soundness.” He argued that the statute, enacted in 1989, is outdated and misaligned with modern banking and technology.

• Recalibrating Capital Standards: Carney warned that miscalibrated capital rules “can raise borrowing costs, reduce credit availability, and restrict liquidity in the economy.” As agencies consider the Basel III endgame, he advocated for a capital-neutral approach and a holistic review of leverage ratios, including finalizing the proposed changes to the Enhanced Supplementary Leverage Ratio. Carney added that “ABA strongly supports a broader holistic review of leverage ratio requirements and appropriate future rulemaking to ensure that all leverage ratios function as a backstop to risk-based capital requirements and not a binding constraint.”

Taken together, these four proposed changes “will make the financial system safer, more competitive, and better equipped to serve customers and communities,” Carney concluded.

Read Carney’s full testimony here.