Federal Reserve: Policy Issues in the 118th Congress

January 6, 2023 – February 6, 2024 R47377

Federal Reserve:
February 6, 2024
Policy Issues in the 118th Congress
Marc Labonte
The responsibilities of the Federal Reserve (Fed) fall into four main categories: monetary policy,
Specialist in
regulation of certain banks and other financial firms, provision and oversight of certain payment
Macroeconomic Policy
systems, and lender of last resort. This report summarizes policy issues for Congress in each of

these areas, as well as issues surrounding congressional oversight.

Monetary policy. The Fed has a statutory mandate of maximum employment and price stability.
In normal conditions, the Fed conducts monetary policy by targeting the federal funds rate, a short-term interest rate. The Fed
raised short-term interest rates from zero in March 2022 to a range of 5.25%-5.5% in July 2023 in an effort to reduce
inflation, which has run well above the Fed’s 2% inflation target since 2021. As inflation has fallen, economists have debated
whether reducing interest rates in 2024 would be timely or premature and whether the Fed will be able to orchestrate a “soft
landing” that avoids the economy entering a recession.
Following economic crises, the Fed has made large scale asset purchases, expanding its balance sheet as an additional
monetary policy tool. The balance sheet almost doubled to $8.9 trillion following the COVID-19 pandemic, and now the Fed
is gradually reducing its size, with uncertainty about when that process will end. The Fed remits its net income to the
Treasury, and higher interest rates have caused its net income to turn negative and its remittances to temporarily fall to zero.
Regulation. The Fed regulates bank holding companies, some state-chartered banks, and some U.S. operations of foreign
banks. Large banks are subject to enhanced prudential regulation administered by the Fed. Congress is interested in a number
of Fed regulatory issues. The failure of Silicon Valley Bank (SVB) in the spring of 2023 raised questions about whether the
Fed’s supervision of SVB was deficient and whether reduced regulatory requirements on large banks following the enactment
of P.L. 115-174 contributed to its failure. The “Basel III endgame” proposed rule would strengthen capital requirements for
large banks. The Fed’s other current regulatory priorities include managing climate risk, the merger approval process, and
crypto services offered by banks. H.R. 4763 would allow banks to provide custody services for crypto and other digital
assets. S. 2860 would facilitate banking services for cannabis businesses that are in compliance with state laws.
Payments. The Fed operates parts of the wholesale payment system in competition with the private sector while also setting
risk-management standards for private wholesale payment system operators. In July 2023, the Fed introduced a real-time
payment system, FedNow. In the 118th Congress, the House Financial Services Committee has considered legislation to
prohibit the Fed from issuing a central bank digital currency or “digital dollar” (H.R. 5403) and to give the Fed jurisdiction
over nonbank payment stablecoin issuers (H.R. 4766).
Lender of last resort. The Fed was created as a “lender of last resort” to provide liquidity to the banking system during
periods of financial instability. The Fed created emergency facilities to support the financial system during the pandemic.
Borrowing—and problems with borrowing—by failed banks in 2023 have raised questions about its lender of last resort role.
When SVB failed, the Fed created the Bank Term Funding Program to allow banks to access longer-term loans against the
book value, as opposed to market value, of their assets.
Oversight. The Fed has significant independence from Congress and the Administration to fulfill its duties, but Congress
retains oversight responsibilities. The goals of independence and oversight can be in tension, and Congress has grappled with
balancing the two through proposals to increase public disclosure and accountability. S. 2190 and H.R. 3556 would require
the Fed to provide more information on supervision, and H.R. 3556 would also require the Fed to provide more information
on lending programs.
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Introduction
The Federal Reserve Act of 1913 (12 U.S.C. §§221 et seq.) created the Federal Reserve (Fed) as
the nation’s central bank. The Fed’s responsibilities fall into four main categories: monetary
policy, regulation of certain banks and other financial firms, provision and oversight of certain
payment systems, and lender of last resort. The Fed has significant independence from Congress
and the Administration to fulfill its duties, but Congress retains oversight responsibilities. This
report provides background and discusses current policy issues in each of those four areas, as well
as oversight and diversity.
The Fed’s powers and mission have evolved since its creation. Its independence gives its latitude
to act quickly and decisively. For that reason, Congress has often expressed interest in expanding
the Fed’s responsibilities into new public policy areas. However, the Fed’s tools are limited.
Expanding the Fed’s responsibilities into new areas necessarily causes the Fed to grapple with
more political tradeoffs, which makes it harder to justify its independence in a democratic system.
Because its tools are limited, giving the Fed new responsibilities can also dilute its effectiveness.
Structure
The Federal Reserve System is composed of 12 regional Federal Reserve banks overseen by the
Board of Governors in Washington, DC. Figure 1 illustrates the city in which each bank is
headquartered and the area of each bank’s jurisdiction. The creators of the Fed intended to create
a decentralized system to allay concerns that power would be concentrated in New York, the
primary financial center. Contradictions between this desire and the duties of the Fed (such as
monetary policy), which were more effectively carried out if centralized, led to a series of reforms
in the early years to make the system more centralized.1 Tension between competing desires for a
centralized and decentralized system are at the root of some policy proposals to change the Fed’s
structure.
Figure 1. Federal Reserve Districts

Source: Federal Reserve.

1 Roger Lowenstein, America’s Bank (New York: Penguin, 2015).
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The board is composed of seven governors nominated by the President and confirmed by the
Senate. Under Title 12, Section 241, of the U.S. Code, the President is required to make selections
“with a due regard to a fair representation of financial, agricultural, industrial, and commercial
interests” and may not select more than one governor from any of the 12 Federal Reserve
districts. One of the governors must have “primary experience working in or supervising
community banks.” The President selects (and the Senate confirms) a chair and two vice chairs
from among the governors, one of whom is responsible for supervision of the entities the Fed
regulates. The governors serve nonrenewable 14-year terms, but the chair and vice chairs serve
renewable four-year terms. Board members are chosen without regard to political affiliation,
unlike many other federal regulators and independent agencies. Regional bank presidents are
chosen by their boards with the approval of the Board of Governors.
In general, policy is formulated by the Board of Governors and carried out by the regional banks.
Monetary policy decisions, however, are made by the Federal Open Market Committee (FOMC),
which is composed of the seven governors, the president of the New York Fed, and four other
regional bank presidents. Representation for these four seats rotates among the other 11 regional
banks. The FOMC is chaired by the Fed chair.
The Fed’s budget is not subject to the congressional appropriation or authorization process. The
Fed is funded by fees paid by financial institutions that use its services and the income generated
by securities it owns. As discussed below,2 its income exceeds its expenses, and it remits most of
its net income to the Treasury, where it is added to general revenues and used to reduce the
federal debt. By statute, the Consumer Financial Protection Bureau (CFPB) is funded by a
transfer from the Fed set by the director of the CFPB. An appellate court recently ruled that this
funding mechanism is unconstitutional, and the CFPB has appealed the decision.3
The Fed’s capital consists of stock and a surplus. The surplus is capped at $6.825 billion by law.
(Congress reduced the Fed’s financial surplus as a budgetary “pay for” in P.L. 114-94, P.L. 115-
123, and P.L. 115-174.4) Private banks regulated by the Fed must buy stock in the Fed to become
member banks. Membership is mandatory for federally chartered banks but optional for state-
chartered banks. Unlike common stock in a private company, this stock does not confer
ownership control. However, it does provide the banks with the right to choose two-thirds of the
directors of the boards of the 12 Fed regional banks. The stock also pays a dividend set in statute.
As amended by P.L. 114-94, the dividend is 6% for banks with less than $10 billion in assets (as
of 2015, and adjusted for inflation thereafter) and the lower of 6% or the 10-year Treasury yield
for banks with more than $10 billion in assets.
The House Financial Services Committee ordered H.R. 3556 to be reported on May 24, 2023,
which would, among other things, require the vice chair for supervision to have “primary
experience working in, or supervising” banks and provide the other Fed governors a role in
formulating regulatory policy. The current vice chair’s experience is as a professor and former
Treasury official specializing in financial regulation.
Policy issues for Congress going forward include the following:

2 See the section entitled “Losses on the Fed’s Balance Sheet.”
3 For more information, see CRS Legal Sidebar LSB10847, Congressional Court Watcher: Recent Appellate Decisions
of Interest to Lawmakers (Oct. 17–Oct. 23, 2022), by Michael John Garcia and Caitlain Devereaux Lewis.
4 The acts that statutorily reduced the Fed’s surplus are listed at Board of Governors of the Federal Reserve System,
“Federal Reserve Board announces Reserve Bank income and expense data and transfers to the Treasury for 2021,”
press release, January 14, 2022, https://www.federalreserve.gov/newsevents/pressreleases/other20220114a.htm.
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• Should the current number and location of Federal Reserve banks, which has not
changed since their creation over a hundred years ago, be updated to reflect
economic and population shifts since then?
• Should smaller banks receive a dividend fixed in statute, or should their dividend
adjust with market interest rates, as is the case for larger banks?
• Is ownership of the Fed by the banks that it regulates appropriate, given the
inherent conflict of interest in such an arrangement? Or are current safeguards
sufficient?
• Should the CFPB have its own funding source or, pending outstanding litigation,
continue to be funded through transfers from the Fed?
• Should Federal Reserve regional banks conduct research and promote policies
outside the scope of the statutory duties of the Federal Reserve System? If not,
are new statutory restrictions appropriate?
• Should the geographic diversity requirements for board members be repealed or
be interpreted more strictly than they have been in practice?
• Should seats on the board be set aside for other interest groups besides
community banks? Or is it inappropriate to have any seats set aside for specific
interest groups?
For more information, see CRS In Focus IF10054, Introduction to Financial Services: The
Federal Reserve, by Marc Labonte.
Monetary Policy
Monetary policy refers to the Fed’s influence over interest rates and the money supply to alter
economic activity. Congress has delegated monetary policy to the Fed but conducts oversight to
ensure the Fed meets its statutory mandate from 1977 of “maximum employment, stable prices,
and moderate long-term interest rates” (12 U.S.C. §225a). The first two goals are referred to as
the dual mandate. Since 2012, the Fed has defined stable prices as 2% inflation, measured as the
annual percent change in the Personal Consumption Expenditures (PCE) price index.
As mentioned, the FOMC sets monetary policy. FOMC meetings are regularly scheduled every
six weeks, but the chair sometimes calls unscheduled meetings. After each of these meetings, the
FOMC releases a statement that announces any changes to monetary policy, the rationale for the
current monetary stance, and the future outlook.
In normal economic conditions, the Fed’s primary instrument for setting monetary policy is the
federal funds rate (FFR), the overnight interest rate in the federal funds market, a private market
where banks lend to each other. The Fed sets a target range for the FFR that is 0.25 percentage
points wide and uses its tools to keep the actual FFR within that range. When the Fed wants to
stimulate the economy, it makes policy more expansionary by reducing interest rates. When it
wants to make policy more contractionary or tighter, it raises rates. In principle, there is a neutral
interest rate that is neither expansionary not contractionary, although it is difficult to estimate
what the neutral rate is in practice, and it seems to change over time.5 The Fed chooses whether to
make monetary policy expansionary, contractionary, or neutral based on how employment and
inflation are performing compared to its statutory goals—expansionary policy can boost

5 See CRS Insight IN11056, Low Interest Rates, Part 2: Implications for the Federal Reserve, by Marc Labonte.
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employment but risks spurring inflation, while contractionary policy can constrain inflation but
risks decreasing employment, as explained below.
Changes in the FFR target lead to changes in interest rates throughout the economy, although
these changes are mostly less than one-to-one. Changes in interest rates affect overall economic
activity by changing the demand for interest-sensitive spending (goods and services that are
bought on credit). The main categories of interest-sensitive spending are business physical capital
investment (e.g., plant and equipment), consumer durables (e.g., automobiles, appliances), and
residential investment (new housing construction). All else equal, higher interest rates reduce
interest-sensitive spending, and lower interest rates increase interest-sensitive spending.
Interest rates also influence the demand for exports and imports by affecting the value of the
dollar. All else equal, higher interest rates increase net foreign capital inflows as U.S. assets
become more attractive relative to foreign assets. To purchase U.S. assets, foreigners must first
purchase U.S. dollars, pushing up the value of the dollar. When the value of the dollar rises, the
price of foreign imports declines relative to U.S. import-competing goods, and U.S. exports
become more expensive relative to foreign goods. As a result, net exports (exports less imports)
decrease. When interest rates fall, all of these factors work in reverse and net exports increase, all
else equal.
Business investment, consumer durables, residential investment, and net exports are all
components of gross domestic product (GDP). Thus, if expansionary monetary policy causes
interest-sensitive spending to rise, it increases GDP in the short run. This increases employment
as more workers are hired to meet increased demand for goods and services. An increase in
spending also puts upward pressure on inflation.6 Contractionary monetary policy has the
opposite effect on GDP, employment, and inflation. Most economists believe that although
monetary policy can permanently change the inflation rate, it cannot permanently change the
level or growth rate of GDP because long-run GDP is determined by the economy’s productive
capacity (the size of the labor force, capital stock, and so on). If monetary policy pushes demand
above what the economy can produce, then inflation should eventually rise to restore equilibrium.
When setting monetary policy, the Fed must take into account the lags between a change in policy
and economic conditions so that rate changes can be made preemptively.
The Fed generally tries to avoid policy surprises, and FOMC members regularly communicate
their views on the future direction of monetary policy to the public.7 The Fed describes its
monetary policy plans as “data dependent,” meaning plans would be altered if actual employment
or inflation deviate from its forecast. Data is volatile, however, and true data dependence in
policy setting would lead to sudden shifts in policy. In practice, the Fed likes to avoid surprises as
much as possible, so large-scale shifts in course are relatively infrequent.
For more information, see CRS In Focus IF11751, Introduction to U.S. Economy: Monetary
Policy, by Marc Labonte.
The Post-Financial Crisis Monetary Policy Framework
Following the 2007-2009 financial crisis, the Fed changed how it conducted monetary policy. The
Fed now maintains the FFR target primarily by setting the interest rate it pays banks on reserves

6 The Fed targets interest rates instead of money supply growth because the relationship between money supply growth
and inflation is unpredictable. The current target range is reported at Board of Governors of the Federal Reserve
System, “Policy Tools,” https://www.federalreserve.gov/monetarypolicy/openmarket.htm.
7 The Fed imposes “blackout” rules to prevent officials from publicly discussing potentially market-moving topics
close to FOMC meetings.
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held at the Fed (IOR) and by using reverse repurchase agreements (repos) to drain liquidity from
the financial system. It received statutory authority to pay interest on reserves in 2008.8 In 2014,
the Fed created a standing reverse repo facility to help put a floor under the FFR. Financial
market participants earn interest by lending excess cash to the Fed at the reverse repo facility.
Unlike the FFR, the Fed sets the IOR and the rate offered at its reverse repo facility directly. The
IOR and repo rate anchor the FFR, because banks will generally deploy their surplus reserves to
earn whichever rate is more attractive.9
Before the crisis, monetary policy was conducted differently. The Fed did not have authority to
pay interest on bank reserves until 2008, so it could not target the FFR by setting the IOR.10
Instead, the Fed directly intervened in the federal funds market through open market operations
that added or removed reserves from the federal funds market. Open market operations could be
conducted by buying or selling Treasury securities but were typically conducted through repos.
When the Fed buys Treasury securities or lends in the repo market, it increases bank reserves,
putting downward pressure on the FFR. Selling securities or borrowing in the repo market (which
the Fed calls a reverse repo) has the opposite effect. The Fed did not create any expectation that
repo market participants could rely on it to provide needed liquidity or remove excess liquidity
from the market. (As noted above, the Fed still purchases Treasury securities and uses repos and
reverse repos, but it no longer does so to target the FFR.)
Before the crisis, the Fed could target the FFR through direct intervention in the federal funds
market because reserves were scarce—banks held only enough reserves to slightly exceed the
reserve requirements set by the Fed. Now, banks hold trillions of dollars of reserves despite the
fact that the Fed eliminated reserve requirements in 2020. The overall level of reserves is the
result of Fed actions—primarily quantitative easing (QE), discussed below—that have increased
the Fed’s balance sheet and are not a choice by banks.
After the Fed ended QE in 2014, it decided to maintain abundant reserves instead of fully
shrinking its balance sheet and returning to its pre-crisis monetary framework. With reserves so
abundant, adding or removing reserves could not raise the FFR above zero in the absence of IOR
and a standing (i.e., on-demand) reverse repo facility. During the financial crisis and the
pandemic, the Fed made very large amounts of repo funding available on an ad hoc basis to
ensure markets stayed liquid. In 2021, the Fed added a standing repo facility to make it easier to
keep the FFR from exceeding its target as it shrinks its balance sheet. But the facility also shifted
the assurance that Fed repo funding would be available in times of need from an ad hoc to a
permanent basis. The repo and reverse repo facilities, which fundamentally altered the
functioning of a private lending market (by creating a permanent Fed backstop in the market),
were created using existing authority without congressional approval or notice-and-comment
rulemaking.

8 Repos are economically equivalent to short-term collateralized loans. Depending on whether viewed from the
perspective of the borrower or lender, they are referred to as repos or reverse repos, respectively. For a primer on repos,
see CRS In Focus IF11383, Repurchase Agreements (Repos): A Primer, by Marc Labonte.
9 The interest rate on reserves might be expected to set a floor on the FFR, but in practice the actual FFR was slightly
lower than the interest rate on reserves when the Fed began paying interest from 2008 until 2019. This discrepancy has
been ascribed to the fact that some participants in the federal funds market—such as Fannie Mae, Freddie Mac, and the
Federal Home Loan Banks—do not earn interest on reserves held at the Fed. See Gara Afonso et al., “Who’s Lending
in the Fed Funds Market,” Federal Reserve Bank of New York, December 2, 2013,
http://libertystreeteconomics.newyorkfed.org/2013/12/whos-lending-in-the-fed-funds-market.html#.VDWOgxYXOmo.
10 The authority (12 U.S.C. §461(b)) for the Fed to pay interest on reserves was originally granted in the Financial
Services Regulatory Relief Act of 2006, beginning in 2011. The start date was changed to immediately in the
Emergency Economic Stabilization Act of 2008 (P.L. 110-343).
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High Inflation and Higher Interest Rates11
The primary focus of monetary policy is currently on reducing high inflation. After decades of
low inflation, inflation has been above the Fed’s 2% target since March 2021. PCE inflation
(measured as the 12-month change) peaked above 7% in June 2022, its highest level in decades.
Since then, it has gradually declined but remains above 2%. High inflation originated in a number
of factors. On the supply side, these included supply chain disruptions and high commodity prices
following the Russian invasion of Ukraine. On the demand side, these included strong consumer
demand, in part because of the fiscal and monetary stimulus put in place during the pandemic.
But regardless of why inflation is high, it can be reduced through policies that reduce demand or
increase supply. Mainstream economists view monetary policy as the policy option that can
reduce inflation most quickly and forcefully in practice, and so they view the ability to effectively
reduce inflation to lay primarily with the Fed. In the words of Fed Chair Jerome Powell, “The
first lesson [from the history of inflation] is that central banks can and should take responsibility
for delivering low and stable inflation.”12
By historical standards, the Fed provided a magnitude of monetary stimulus in response to the
COVID-19 pandemic that was matched only during the 2007-2009 financial crisis. This stimulus
included reducing the FFR to the zero lower bound and purchasing trillions of dollars of
securities, as discussed in the next section. Despite higher inflation since 2021, the Fed left this
stimulus in place until March 2022. Fed leadership (and other policymakers) assumed that the
initial increase in inflation in 2021 was transitory and decided to leave monetary stimulus in place
to guard against the economic recovery becoming derailed by the ongoing threat of the pandemic.
In hindsight, inflation proved to be a bigger problem than a lackluster recovery, but decades of
sustained low inflation—at times, undesirably low inflation—may have led the Fed to
underestimate the threat of high inflation. By the time stimulus began to be withdrawn, inflation
had become high, widespread, and deeply embedded.
The Fed changed course beginning in 2022, raising rates repeatedly following each FOMC
meeting from March 2022 to July 2023—by as much as 0.75 percentage points following some
meetings—and beginning an ongoing gradual reduction of the balance sheet in June 2022.13 By
July 2023, rates were at their highest level since 2007.
The combination of improving supply chains, lower energy prices, and tighter monetary policy
brought inflation down much closer to the Fed’s 2% target, but it has remained above the target to
date. The Fed has not implemented any additional rate increases since July 2023 and is assessing
whether the tightening to that point would be sufficient to drive inflation back to its target.
Recently, leadership has signaled that rates have likely peaked and has started discussing the
possibility of reducing rates in 2024, perhaps before inflation has reached 2%. This could be
viewed as risky, given how recently inflation was high, but monetary policy works with a lag, so
the Fed wants to avoid overshooting its target. The Fed is hoping for a “soft landing,” where
inflation falls without triggering a recession. When the Fed was raising rates, many outside
forecasters believed a recession or “hard landing” was more likely. In part, that is because there
are few examples of large increases in interest rates that did not result in recession—and when
they did, they involved smaller interest rate increases and a lower initial inflation rate. But so far,

11 This section draws from other CRS products coauthored with Lida Weinstock.
12 Chair Jerome H. Powell, “Monetary Policy and Price Stability,” speech, August 26, 2022,
https://www.federalreserve.gov/newsevents/speech/powell20220826a.htm.
13 The Fed can mitigate inflationary pressures by raising interest rates and reducing the size of its balance sheet, and
different combinations of the two will yield the same economic outcomes. In practice, it has based its inflation
reduction strategy on raising interest rates and not based its balance sheet reduction plans on the inflation rate.
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economic activity has moderated without contracting,14 and inflation looks to be on course to
return to 2%, generating more optimism outside the Fed that a soft landing can be achieved.
High inflation has been an issue of congressional focus since 2021. Policy issues going forward
include the following:
• Can the Fed successfully restore price stability without further rate increases?
Given lags in monetary policy’s effects and the Fed’s need to maintain inflation
credibility, how low should inflation be when the Fed starts bringing interest
rates back down?
• Can the Fed restore price stability without causing a recession? Given the lags in
monetary policy effectiveness, have rates been raised too high to avoid a
recession in the coming year? If the economy enters a recession before inflation
has returned to 2%, how should the Fed respond?
• At what rate would tolerating higher inflation rate be preferable to policies that
might result in higher unemployment?
• What can Congress do for U.S. businesses and households negatively affected by
higher interest rates? Would actions to assist them make it harder to achieve price
stability?
• Could price stability be restored more quickly if monetary tightening is
accompanied by tighter fiscal policy? If the Fed is unable to achieve its inflation
target without causing a recession, should there be a fiscal policy response?
For more information, see CRS Report R47273, Inflation in the U.S. Economy: Causes and
Policy Options, by Marc Labonte and Lida R. Weinstock; and CRS In Focus IF12543, Has the
Federal Reserve Achieved a Soft Landing in 2023?, by Lida R. Weinstock and Marc Labonte.
Normalizing the Fed’s Balance Sheet
The Fed’s balance sheet can be described in standard accounting terms. Like any company, the
Fed holds assets on its balance sheet that are equally matched by the sum of its liabilities and
capital. The Fed’s assets are primarily Treasury securities and mortgage-backed securities
(MBS)15 acquired through open market operations and repos lent to the private sector through its
Standing Repo Facility.16 Its assets also include discount window loans and loans and assets held
by its other emergency facilities. Its liabilities are primarily currency, reverse repos borrowed
from the private sector, bank reserves held in master accounts at the Fed, and balances that
Treasury holds at the Fed.17 When the Fed purchases assets or makes loans, its balance sheet gets

14 The economy contracted mildly in the first two quarters of 2022 (at the beginning of the period when the Fed was
raising rates), but this was not officially classified as a recession, and the economy has grown at a moderate rate since
then.
15 By statute, the Fed can purchase only a narrow range of securities, notably securities issued or guaranteed by the
federal government or a federal agency. Government-sponsored enterprises are considered federal agencies for this
purpose, and they issue and guarantee MBS and other securities.
16 Repos outstanding have been zero since June 2020 because, in normal financial conditions, repo market participants
can borrow at lower cost privately than from the Fed. In periods of financial instability, the Fed can ease overall
liquidity conditions by making large amounts of repos available. For example, during the pandemic, the Fed made $1
trillion in overnight repos available at auction every day and made an additional $500 billion in longer-term repos
available at least once a week.
17 Reserves are assets held as liquid cash balances, as opposed to funds invested in loans or securities.
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larger, which is matched predominantly by growth in two of its liabilities—reverse repos and
bank reserves, as seen in Figure 2.
Figure 2. Selected Assets and Liabilities on Fed’s Balance Sheet, 2008-2023

Source: Federal Reserve.
Twice in its history—during the 2007-2009 financial crisis and the COVID-19 pandemic—the
Fed has lowered the FFR target range to 0%-0.25% (called the zero lower bound) in response to
unusually severe economic disruptions. Because the zero lower bound prevented the Fed from
providing as much conventional stimulus as desired to mitigate these crises, it turned to
unconventional monetary policy tools in an effort to reduce longer-term interest rates. Under this
policy, popularly called QE, it purchased trillions of dollars of primarily Treasury securities and
MBS in an effort to directly lower their yield.18 As a result, the Fed’s balance sheet grew
significantly in three rounds of purchases from 2008 to 2014 and then again when it made
purchases from 2020 to 2022, as shown in Table 1. The Federal Reserve’s balance sheet
expanded from $4.7 trillion in March 2020, to $7 trillion in May 2020, to a high of almost $9
trillion in May 2022.19 Before the Fed started reducing its balance sheet, nearly $5.8 trillion of its
assets were held in Treasury securities and $2.7 trillion in MBS. At that time, about $3.4 trillion
of its liabilities were held in bank reserves and $2.2 trillion in reverse repos. At its peak, the
balance sheet was around 10 times larger than it was before the 2008 financial crisis.

18 Except in emergencies, the Fed is allowed to purchase only a limited range of securities, including securities issued
or guaranteed by the government or government agencies (12 U.S.C. §355). The Fed considers MBS guaranteed by
government-sponsored enterprises to qualify.
19 The balance sheet also increases when the Fed provides credit to banks and other financial market participants, which
are assets on the balance sheet. In both crises, this played a significant role in the initial increase in the balance sheet,
but credit outstanding fell quickly as financial conditions normalized. For more details on the balance sheet, see Federal
Reserve, Credit and Liquidity Programs and the Balance Sheet: Recent Balance Sheet Trends,
https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm.
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Table 1. Federal Reserve Balance Sheet Trends
Trillions of Dollars, 2008-2022
Event (Dates of Balance Sheet Changes)
End Size
Change
Financial Crisis (9/08-12/08)
$2.2
+$1.3
QE1 (3/09-5/10)
$2.3
+$0.4
QE2 (11/10-7/11)
$2.9
+$0.6
QE3 (10/12-10/14)
$4.5
+$1.7
Rol Off (9/17-8/19)
$3.8
-$0.7
Repo Turmoil (9/19-2/20)
$4.2
+$0.4
COVID-19 (3/20-5/22)
$8.9
+$4.8
Source: CRS calculations based on Federal Reserve data.
The goals of QE were to reduce long-term interest rates and provide additional liquidity to the
financial system. QE reduced long-term interest rates by driving down yields on the securities the
Fed was purchasing, which led to lower interest rates throughout the economy.20 (Following the
financial crisis, the Fed concentrated its purchases in long-term securities. Following the
pandemic, the Fed purchased securities across the maturity spectrum, so the effect on long-term
rates would be diminished.) The reduction in yields on MBS translated to lower mortgage rates,
stimulating housing demand. QE increased liquidity by increasing bank reserves.
As part of its efforts to tighten monetary policy, the Fed began to taper its purchases in November
2021 (i.e., reduced the growth rate of the balance sheet), ended its purchases in March 2022 (i.e.,
kept the size of the balance sheet steady), and began to reduce the size of its balance sheet in June
2022. This reduction is passive and occurs by the Fed not fully replacing maturing assets with
new asset purchases—the Fed has no plans to sell securities currently. Now that the wind down is
fully phased in, the Fed is allowing up to $60 billion in Treasury securities and $35 billion in
MBS to roll off every month. In months where the amount of securities rolling off has exceeded
the caps, the Fed has purchased assets to replace the excess amount. In months where fewer
securities have rolled off than the cap amount, the balance sheet has shrunk by less than $95
billion.21 At the end of 2023, the size of the balance sheet was about $7.7 trillion.
In statements in January and May 2022, the Fed laid out its long-term goals for the balance
sheet.22 In the long run, the Fed intends to hold primarily Treasury securities, eventually
eliminating its MBS holdings. It intends to permanently maintain a large balance sheet, consistent
with its “ample reserves” framework for monetary policy,23 and “intends to slow and then stop the
decline in the size of the balance sheet when reserve balances are somewhat above the level it

20 When the price of a debt security rises, its effective yield falls. This alters interest rates on new debt.
21 Because the MBS held by the Fed are backed mostly by mortgages with interest rates that are lower than current
market rates, borrowers have not been repaying or refinancing those mortgages at a high pace, causing MBS roll offs to
be lower than the cap in most months. The Fed reported roll offs relative to the caps in Federal Reserve Bank of New
York, Open Market Operations During 2022, April 2023, https://www.newyorkfed.org/medialibrary/media/markets/
omo/omo2022-pdf. For technical reasons, the actual reduction in the balance sheet does not match these caps from
month to month. For an explanation, see Federal Reserve Bank of New York, The “How and When” of the Fed’s
Balance Sheet Runoff, September 8, 2022, https://medium.com/new-york-fed/the-how-and-when-of-the-feds-balance-
sheet-runoff-3c37787fa948.
22 Federal Reserve, “FOMC Communications Related to Policy Normalization,” https://www.federalreserve.gov/
monetarypolicy/policy-normalization.htm.
23 See the section above entitled “The Post-Financial Crisis Monetary Policy Framework.”
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judges to be consistent with ample reserves.” It has not yet indicated what it expects that level to
be. When the wind-down is complete, it is unclear whether the Fed intends for the balance sheet
to be larger than it was before the pandemic, when it was $4.2 trillion.
Policy issues for Congress going forward include the following:
• Does the Fed’s large holdings of Treasury securities compromise its
independence by making it more susceptible to subordinating monetary policy by
providing low-cost financing of the federal debt? Do the Fed’s holdings (and its
effect on Treasury yields) make it more attractive to Congress and the
Administration to increase the federal debt?
• Does QE contribute to asset bubbles that have negative implications for financial
stability and wealth inequality? If so, do these costs outweigh the benefits of
providing more stimulus during crises?
• How soon will the Fed stop shrinking its balance sheet? What is the best way to
avoid disruptions to Treasury and repo markets, as occurred in the fall of 2019,
which caused the Fed to reverse course and start increasing the balance sheet
again?
• To avoid such disruptions, will the Fed err on the side of leaving the balance
sheet unnecessarily large? Will doing so lead to the Fed having a permanently
outsized presence in repo markets through heavy use of its standing repo
facilities?
• Have the Fed’s MBS purchases contributed to making house prices rise out of
reach for first-time buyers by contributing to low mortgage rates during the
pandemic? How can the Fed disengage from the MBS market without disrupting
mortgage markets at a time when mortgage rates have risen sharply? Should
Congress consider limiting the types of securities, such as MBS and agency debt,
that the Fed is authorized to purchase?
• Is it possible or desirable for Congress to limit the Fed’s future use of QE?
For more information, see CRS In Focus IF12147, The Fed’s Balance Sheet and Quantitative
Tightening, by Marc Labonte.
Losses on the Fed’s Balance Sheet
The Fed earns income on its loans, repos, and securities holdings, which, along with fees it
charges, are used to finance its expenses. Its expenses include operating expenses and the interest
paid on bank reserves and reverse repos, two of its main liabilities. The difference between
income and expenses is called net income, similar to profits. Net income is used exclusively to (1)
pay statutorily required dividends to shareholders and (2) increase the surplus when it is below its
statutory cap. The remainder is transferred to the Treasury (called remittances), where they are
added to the federal government’s general revenues. Since remittances cannot be used to finance
additional federal spending, they effectively make the budget deficit and federal debt smaller than
they otherwise would be.
The Fed’s balance sheet consists mostly of longer-term assets and very short-term liabilities.
Typically, longer-term assets have higher yields than short-term liabilities do, so net income is
positive. However, since September 2022, the Fed’s interest expenses have exceeded its interest
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income, causing net income to be negative and remittances to temporarily fall to near zero.24 Net
income has been negative because interest rates rose sharply in 2022. As a result, the interest rate
the Fed pays on bank reserves and reverse repos became higher than the yield on securities it
acquired when interest rates were much lower. As discussed above, the Fed acquired large
holdings of low-yielding securities through QE during the pandemic.25 Interest expenses rose
from $5.7 billion in 2021 to $102.4 billion 2022 to $281.1 billion in 2023.
Remittances have not been zero since 1934.26 In 2023, they were effectively zero. The yield on
the Fed’s assets will eventually exceed the yield on its liabilities again because the Fed will
reduce short-term interest rates or because low-yielding assets on the Fed’s balance sheet will
eventually mature and be replaced by higher yielding assets.27 At that point, net income will
become positive again, but projections suggest that may take a few years. One estimate projects
that net income will be negative until 2025 and remittances will be effectively zero until 2027.28
Although Fed losses have reduced federal revenues since September 2022, cumulative federal
revenues over time have still been larger than they would have been if the Fed had not expanded
its balance sheet, which led to unusually large remittances from 2009 to 2022 (see Figure 3).
Beginning in 2009, its net income and remittances increased significantly as a result of its balance
sheet growth caused by QE and low short-term interest rates on its liabilities. Between 2009 and
2022, annual remittances were between $47 billion and $117 billion each year. Before 2009, the
largest annual remittance ever was $35 billion. Moreover, this considers only the direct effect of
QE on the federal budget. If QE returned the economy to full employment faster, that also had a
positive indirect effect on the federal budget.

24 Net income and remittances for each of the 12 Federal Reserve banks is calculated individually. Because not all 12
banks had negative net income throughout 2023, a small balance was remitted to Treasury.
25 For example, at the end of 2022, almost 80% of its MBS holdings were issued since 2020, and over 70% had coupon
rates of 2.5% or lower. Federal Reserve Bank of New York, Open Markets Operations During 2022
26 In some years, remittances were statutorily required. In years with no statutory requirement, remittances were solely
the result of positive net income. Federal Reserve, Annual Report, 2022, Table G.10, https://www.federalreserve.gov/
publications/files/2022-annual-report.pdf.
27 The Fed does not mark its balance sheet holdings to market, so unrealized losses on assets do not reduce net income
or remittances. So long as the Fed continues to hold its securities to maturity, as planned, the Fed will not realize any
losses through sales of these securities, and the chance that these securities will suffer losses upon maturity is
negligible.
28 Miguel Faria e Castro and Samuel Jordan-Wood, “The Fed’s Remittances to the Treasury: Explaining the ‘Deferred
Asset’,” Federal Reserve Bank of St. Louis, November 21, 2023, https://www.stlouisfed.org/on-the-economy/2023/
nov/fed-remittances-treasury-explaining-deferred-asset.
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Figure 3. Fed Remittances to Treasury
2000-2023

Source: Federal Reserve, Annual Report, 2022, Table G.10, https://www.federalreserve.gov/publications/files/
2022-annual-report.pdf; Federal Reserve, “Federal Reserve Board Announces Preliminary Financial Information
for the Federal Reserve Banks’ Income and Expenses in 2023,” press release, January 12, 2024,
https://www.federalreserve.gov/newsevents/pressreleases/other20240112a.htm.
Partly because of the statutory limit on its surplus, the Fed holds very little capital relative to its
liabilities, and losses since September 2022 have been an order of magnitude larger than its entire
surplus. But unlike a private company, the Fed does not reduce its capital, become insolvent, or
require a capital infusion to maintain solvency in response to losses. Instead, under its accounting
conventions, it registers the losses as a deferred asset. At the end of 2023, the deferred asset was
$133 billion. Positive net income in future years would be directed to eliminating this deferred
asset instead of being remitted to Treasury. Thus, positive net income will resume before
remittances do.
Private companies hold capital to prevent losses from causing insolvency. But unlike with a
private company, the Fed’s recent losses—which exceed its capital—have not affected its ability
to honor its liabilities, and its creditors cannot compel it to declare bankruptcy. The Fed is not a
profit-maximizing institution—its remittances are a byproduct of monetary policy, not the metric
to judge the success of monetary policy. Losses are a sign not of mismanagement but that its
interest-bearing liabilities had higher yields than its interest-bearing assets did. Losses since 2022
have not reduced the confidence of market participants and do not seem to have affected the Fed’s
political independence. If the Fed based monetary policy on concerns about its profits and losses,
it would detract from achieving its statutory mandate of maximum employment and stable prices.
Policy issues going forward include the following:
• Should the Fed reconsider how it conducts QE to reduce the possibility that
future episodes of balance sheet expansion would ultimately result in losses (e.g.,
by purchasing short-term instead of long-term securities)?
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• To reduce the possibility of future losses, should the Fed revert to the scarce
reserves operating framework in place before 2008 so that it does not need to pay
interest on reserves and reverse repos in order to target interest rates?29
• Should the Fed use conventional accounting standards that would increase
transparency surrounding its financial condition but would require it to
accumulate more capital (through reduced remittances) to absorb potential
losses? Or would conventional accounting standards be inappropriate given its
unique financial status?
• Should Congress raise the statutory limit on the Fed’s surplus to increase the
Fed’s capital stock if it is concerned about losses? Alternatively, should Congress
eliminate the surplus entirely to avoid further use of the surplus as a “pay for” for
unrelated policy changes?30
Mandate Reform and Monetary Policy Strategy
Until 2012, the Fed did not have an inflation target, meaning it did not provide guidance on how
it interpreted its statutory mandate numerically. Since 2012, the FOMC has explained how it
interprets its mandate in its Statement on Longer-Run Goals. It defines stable prices as 2%
inflation, measured as the annual percent change in the PCE price index. It does not set a
corresponding maximum employment target, because, in the Fed’s view, maximum employment
“is not directly measurable and changes over time owing largely to nonmonetary factors that
affect the structure and dynamics of the labor market.” The Fed aims to meet its target on average
over time, offsetting periods of inflation below 2% with periods above 2%.
After a two-year Review of Monetary Policy Strategy, Tools, and Communications, the FOMC
announced on August 27, 2020, revisions to its Statement on Longer-Run Goals and Monetary
Policy Strategy.31 The revised statement provided more detail on how monetary policy would
react to the problem that inflation had fallen below its 2% target for most of the period from the
financial crisis until early 2021. It emphasized changes in strategy to make this less likely in the
future, including (1) advocating periods of above-target inflation to follow periods of below-
target inflation and, (2) assuming inflation is low, pledging to lower rates when unemployment is
high but not to raise rates when unemployment is low. Since inflation has been above target
instead of below target since 2021, the FOMC might consider whether the 2020 revisions are no
longer relevant and have instead become counterproductive.32 One rationale for the 2020
revisions was the weak relationship between unemployment and inflation in previous years. Since

29 If the Fed reverted to its pre-2008 framework for conducting monetary policy, average profits would be lower, but
losses would also be less likely.
30 Previous efforts by Congress to prohibit the use of the surplus as a budgetary pay-for have failed because current
Congresses cannot tie the hands of future Congresses. For example, a scorekeeping rule adopted in H.Con.Res. 290 in
the 106th Congress prohibited the scoring of such Fed surplus transfers as a budgetary offset in the Senate. Although
this rule was not repealed, surplus transfers have since been used as an offset.
31 A description of the review is at https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-
strategy-tools-and-communications.htm. The 2020 statement is at https://www.federalreserve.gov/monetarypolicy/
review-of-monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-
strategy.htm.
32 One study estimated that as a result of the strategy shift, the Fed delayed raising the FFR from zero by two quarters
and that inflation was 0.3 percentage points higher than it otherwise would be at its peak. Andrew Hodge et al., U.S.
and Euro Area Monetary and Fiscal Interactions During the Pandemic: A Structural Analysis, International Monetary
Fund, November 11, 2022, https://www.imf.org/en/Publications/WP/Issues/2022/11/11/U-S-524029; Gauti B.
Eggertsson and Don Kohn, “The Inflation Surge of the 2020s: The Role of Monetary Policy,” Brookings Institution,
August 2023, https://www.brookings.edu/wp-content/uploads/2023/07/WP87-Eggertsson-Kohn_7.25.pdf.
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2021, the relationship seemed to strengthen again, as very low unemployment coincided with
very high inflation.
The Fed’s dual mandate provides the Fed with discretion on how to interpret maximum
employment and stable prices and how to achieve those goals. It contains no repercussions if the
goals are missed—as they are whenever the economy enters a recession, as it did briefly in 2020,
or when inflation is high, as it has been since 2021. In practice, the mandate may be better
thought of as a forward-looking guide (i.e., how monetary policy should react when economic
outcomes differ from mandated goals) than a backward-looking benchmark (i.e., what are the
consequences for the Fed when it misses its mandated goals). Unexpected events such as the
pandemic and the war in Ukraine temporarily cause inflation and employment to deviate from the
mandate, but the mandate guides how the Fed should respond when they do while providing the
Fed maximum discretion to decide how to respond.
There is a long-standing debate among economists about what type of central bank mandate and
what monetary policy strategies lead to the best economic outcomes. The Fed had been very
successful at delivering low and stable inflation over the past four decades—until 2021. Whether
it or external forces are to blame for intermittent periods where maximum employment was not
achieved during that time is debatable, but the Fed does not seem better or worse than its
international peers at avoiding recessions. Some commentators believe that a sole goal of price
stability would be more effective than the dual mandate at achieving low inflation and
macroeconomic stability, on the grounds that the Fed has no influence over employment in the
long run.33 Others believe that full employment should get more weight and price stability less.34
The Fed under the past few chairs has argued—and many economists agree—that the economy
has been well served by a dual mandate that balances both parts of the mandate evenly. In any
case, international comparisons suggest that central banks are likely to react to changes in both
unemployment and inflation, regardless of their mandate.
Independent of their mandate type, most central banks have adopted some sort of numerical
inflation target or goal, although there is little consistency in how central banks react when actual
inflation deviates from the target. Some economists believe that the 2% target is too low, while
others believe it is too high. Some economists believe a nominal GDP target or some form of
price level targeting would work better than an inflation target. (A pure price level target, unlike
the Fed’s inflation target, would require a period of deflation to reverse price rises that occur
during periods of high inflation.) Other economists argue that discretionary monetary policy
should be replaced or reduced by a focus on monetary policy rules35—that is, mathematical
formulas that prescribe how interest rates should be set based on a limited number of economic
variables, such as the output gap and inflation. Opponents of these types of proposals believe that
the need to nimbly react to unexpected shocks such as the financial crisis or the pandemic makes
such proposals irrelevant or counterproductive in real-world policymaking. If these types of
changes are desirable, the Fed could pursue them internally, or Congress could impose them
through legislation.
Policy issues for Congress going forward include the following:

33 Thomas Hogan and Alexander William Salter, “The Fed Needs a Single Mandate,” The Hill, July 30, 2022,
https://thehill.com/opinion/finance/3580777-the-fed-needs-a-single-mandate/.
34 Fed Up, A Full-Employment Economy, A Federal Reserve That Works for Working People, April 2021,
https://fedupcampaign.org/wp-content/uploads/2021/06/A-Full-Employment-Economy-A-Fed-that-Works-for-
Working-People.pdf.
35 Sometimes monetary policy rules are called Taylor rules after the creator of an early rule, economist John Taylor.
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• Should the current mandate be maintained because it has generally resulted in
effective policymaking under diverse conditions? Would a change to the mandate
strengthen or weaken congressional oversight?
• Has the current period of high inflation strengthened the case for a single
mandate of price stability? Should the 2020 changes to the Fed’s monetary policy
strategy, intended to address excessively low inflation, be reversed in light of
recent high inflation?
• Conversely, does the Fed overweight its price stability mandate compared to its
maximum employment mandate? If so, what changes could more appropriately
balance the two?
• Should financial stability be added to the Fed’s statutory mandate, or is the Fed
already sufficiently focused on financial stability?
• Is the 2% inflation target the best way to achieve the Fed’s price stability
mandate? Would another measure such as a nominal GDP target, a price level
target, or a policy rule be more effective, or would those measures needlessly
complicate monetary policymaking and reduce public understanding of the Fed’s
intentions?
For more information, see CRS Insight IN11499, The Federal Reserve’s Revised Monetary Policy
Strategy Statement, by Marc Labonte, CRS In Focus IF10207, Monetary Policy and the Taylor
Rule, by Marc Labonte, and CRS Report R41656, Changing the Federal Reserve’s Mandate: An
Economic Analysis, by Marc Labonte.
Bank Regulation
The Fed regulates bank holding companies (BHCs) and thrift holding companies—parent
companies that own nearly all large and most small depositories—for safety and soundness and
other bank regulatory requirements.36 The Fed is also the primary prudential regulator of state-
chartered banks that have elected to become members of the Federal Reserve System and most
types of U.S. operations of foreign banking organizations. Often in concert with the other banking
regulators,37 it promulgates rules and guidance that apply to banks and examines depository firms
under its supervision to ensure that those rules are being followed and those firms are conducting
business prudently. The Fed has rulemaking, supervisory, and enforcement authorities to carry out
its regulatory responsibilities, and many policy issues involve recent and forthcoming actions
using those authorities. The Fed’s supervisory authority includes consumer protection compliance

36 The Fed was assigned regulatory responsibility for thrift holding companies as a result of the Dodd-Frank Act, which
eliminated the Office of Thrift Supervision as the regulator of thrifts.
37 The federal banking regulatory system is charter based. Federally chartered (national) commercial banks are
regulated by the Office of the Comptroller of the Currency (OCC), and state-chartered commercial banks that do not
join the Federal Reserve System are regulated by the Federal Deposit Insurance Corporation (FDIC). National banks
are required to become members of the Fed, and state banks have the option of becoming members, but the Fed is the
primary regulator of only the latter. A BHC is regulated by the Fed at the holding company level, and its banking
subsidiaries can be regulated by the Fed, FDIC, or OCC, depending on the subsidiary’s charter. For more information,
see CRS Report R44918, Who Regulates Whom? An Overview of the U.S. Financial Regulatory Framework, by Marc
Labonte.
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for banks under its jurisdiction that have $10 billion or less in assets.38 The Fed set minimum
reserve requirements for all banks until 2020, when the Fed permanently set them at zero.39
The Fed has also historically had a focus on maintaining financial stability, which the Dodd-
Frank Act made the primary responsibility of the Financial Stability Oversight Council (FSOC),
with certain new duties assigned to the Fed.40 For example, under the Dodd-Frank Act the Fed
regulates large BHCs and systemically important financial institutions for systemic risk, as
discussed in the next section.
The Fed coordinates policy with other regulators on FSOC and through the Federal Financial
Institutions Examination Council. The Fed also participates in intergovernmental fora, such as the
Financial Stability Board and the Basel Committee on Banking Supervision, alongside other U.S.
agencies.
The Fed finalized two notable rules in 2023. In October, it finalized a joint rule with the banking
regulators to modernize the Community Reinvestment Act.41 Separately in October, it finalized a
rule implementing capital standards for insurance companies under its jurisdiction.42 (Currently,
the Fed regulates six thrift holding companies that own insurance subsidiaries.) The Fed also
proposed rules in 2023 on automated valuation models for real estate43 (jointly with other
agencies) and interchange fees for debit transactions,44 as well as some proposals affecting large
banks that are discussed in the next section. In addition, there are a number of ongoing regulatory
issues of interest to Congress covered in the following sections.
Large Bank Issues
The 2007-2009 financial crisis highlighted the problem of “too big to fail” (TBTF) financial
institutions—the concept that the failure of large financial firms could trigger financial instability,
which in several cases prompted extraordinary federal assistance to prevent their failure. Title I of

38 The Dodd-Frank Act transferred the Fed’s authority to promulgate consumer protection rules to the CFPB, but the
Fed retained supervisory responsibilities for banks under its jurisdiction that have $10 billion or less in assets. Although
the CFPB was created as a bureau of the Fed, the Fed has no authority to select CFPB’s leadership or employees or to
set or modify CFPB policy. The CFPB’s budget is financed by a transfer from the Fed. The amount is set in statute and
cannot be altered by the Fed. For more information, see CRS In Focus IF10031, Introduction to Financial Services:
The Consumer Financial Protection Bureau (CFPB), by Cheryl R. Cooper and David H. Carpenter.
39 Their removal is related to the shift to the “abundant reserves” monetary framework discussed below. See Federal
Reserve, “Federal Reserve Actions to Support the Flow of Credit to Households and Businesses,” press release, March
15, 2020, https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315b.htm. According to the Fed,
“Currently, the Board has no plans to re-impose reserve requirements. However, the Board may adjust reserve
requirement ratios in the future if conditions warrant.” Federal Reserve, “Reserves Administration Frequently Asked
Questions,” https://www.frbservices.org/resources/central-bank/faq/reserve-account-admin-app.html.
40 FSOC is a council of regulators, including the Fed, headed by the Treasury Secretary.
41 Federal Reserve, FDIC, OCC, “Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency,
Agencies Issue Final Rule to Strengthen and Modernize Community Reinvestment Act Regulations,” joint press
release, October 24, 2023, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20231024a.htm.
42 Federal Reserve, “Federal Reserve Board Finalizes a Rule Establishing Capital Requirements for Insurers Supervised
by the Board,” press release, October 06, 2023, https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20231006a.htm.
43 Board of Governors of the Federal Reserve System, CFPB, FDIC, Federal Housing Finance Agency, National Credit
Union Administration, and OCC, “Agencies Request Comment on Quality Control Standards for Automated Valuation
Models Proposed Rule,” joint press release, June 1, 2023, https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20230601a.htm.
44 Federal Reserve, Federal Reserve Board Requests Comment On A Proposal To Lower The Maximum Interchange
Fee That A Large Debit Card Issuer Can Receive For A Debit Card Transaction, Press Release, October 25, 2023,
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20231025a.htm.
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the 2010 Dodd-Frank Act (P.L. 111-203) aimed to increase financial stability and end TBTF by
creating an enhanced prudential regulatory (EPR) regime administered by the Fed that applies to
large banks and to nonbank financial institutions designated by FSOC as systemically important
financial institutions (SIFIs).45 Since enactment, the number of designated nonbank firms has
ranged from four to none today.46
Under this regime, the Fed is required to apply a number of safety and soundness requirements to
large banks that are more stringent than those applied to smaller banks and are intended to
mitigate systemic risk:
• Stress tests and capital planning ensure that banks hold enough capital to
survive a crisis.
• Resolution plans (“living wills”) provide plans to safely wind down failing
banks.
• Liquidity requirements ensure that banks are sufficiently liquid if they lose
access to funding markets.
• Counterparty limits restrict banks’ exposure to counterparty default.
• Risk management standards requires publicly traded companies to have risk
committees on their boards and banks to have chief risk officers.
• Financial stability requirements provide for regulatory interventions that can be
taken only if a bank poses a threat to financial stability.
• Capital requirements require large banks to hold more capital than other banks
to potentially absorb unforeseen losses. These include the supplementary
leverage ratio. Banks that have been designated as global systemically important
banks (G-SIBs) by the Financial Stability Board must also meet a G-SIB capital
surcharge. Stress test results determine how much capital large banks must hold
through the stress capital buffer.
The Dodd-Frank Act automatically subjected all BHCs and foreign banks operating in the United
States with more than $50 billion in assets to EPR. In 2018, the Economic Growth, Regulatory
Relief, and Consumer Protection Act (P.L. 115-174) created a more tiered and tailored EPR
regime for banks. It eliminated most EPR requirements for banks with assets between $50 billion
and $100 billion, with the exception of risk management requirements. G-SIBs and banks that
have more than $250 billion in assets automatically remain subject to all EPR requirements, as
modified. Section 401 of P.L. 115-174 gives the Fed discretion to apply most individual EPR
provisions to banks with between $100 billion and $250 billion in assets on a case-by-case basis
only if the provisions would promote financial stability or the institution’s safety and soundness.
Under the Fed’s 2019 implementing rules, large banks are placed in one of four categories based
on their size and complexity, and progressively more stringent requirements are imposed on
them.47 The rule also applied EPR to foreign banks with large U.S. operations and large savings

45 For more information, see CRS Report R42150, Systemically Important or “Too Big to Fail” Financial Institutions,
by Marc Labonte.
46 See CRS Insight IN10982, After Prudential, Are There Any Systemically Important Nonbanks?, by Marc Labonte
and Baird Webel.
47 Federal Reserve, “Federal Reserve Board Finalizes Rules That Tailor Its Regulations for Domestic and Foreign
Banks to More Closely Match Their Risk Profiles,” press release, October 10, 2019, https://www.federalreserve.gov/
newsevents/pressreleases/bcreg20191010a.htm; Federal Reserve, “Federal Reserve Board Issues Final Rule Modifying
the Annual Assessment Fees for Its Supervision and Regulation of Large Financial Companies,” press release,
November 19, 2020, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20201119a.htm; Federal Reserve,
(continued...)
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and loan (thrift) holding companies that are not predominantly engaged in insurance or
nonfinancial activities.48
The Fed’s new vice chair for supervision, Michael Barr, conducted a “holistic capital review” of
requirements applying to large banks from 2022 to 2023, which resulted in several recommended
changes.49
Currently, the Fed has several proposed rules outstanding, in some cases issued jointly with other
bank regulators, that would modify large bank regulatory requirements:
• In 2018, the Fed and the Office of the Comptroller of the Currency (OCC)
proposed a rule to incorporate the G-SIB surcharge into the enhanced
supplementary leverage ratio for G-SIBs. It has not been finalized.50
• The federal banking regulators issued a joint proposal to implement the “Basel III
Endgame” in July 2023 for banks with $100 billion or more in assets, discussed
in more detail below.
• On the same day, in a separate proposal, the Fed proposed changing how the G-
SIB surcharge is calculated.51
• In August 2023, the banking regulators proposed subjecting all banks with $100
billion or more in assets to long-term debt requirements and clean holding
company requirements to facilitate orderly liquidation in the event of the bank’s
failure.52
Policy issues going forward include the following:
• Has the Dodd-Frank Act, as amended, effectively mitigated TBTF? Or do large
banks pose more systemic risk now than they did at the time of enactment? If so,
are complementary or alternative policy approaches needed to address TBTF?
• Did the 2019 changes to EPR better tailor EPR to match the risks posed by large
banks? Or did these changes allow additional systemic and taxpayer risk that
outweigh the benefit of reduced regulatory burden, especially if the benefits have

FDIC, OCC, “Agencies Issue Final Rule to Strengthen Resilience of Large Banks,” press release, October 20, 2020,
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20201020b.htm; Federal Reserve, FDIC, “Agencies
Finalize Changes to Resolution Plan Requirements; Keeps Requirements for Largest Firms and Reduces Requirements
for Smaller Firms,” press release, October 28, 2019, https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20191028b.htm.
48 For a summary of the rule, see Federal Reserve, “Requirements for Domestic and Foreign Banking Organizations,”
https://www.federalreserve.gov/aboutthefed/boardmeetings/files/tailoring-rule-visual-20191010.pdf.
49 Vice Chair for Supervision Michael S. Barr, “Holistic Capital Review,” speech at the Bipartisan Policy Center, July
10, 2023, https://www.federalreserve.gov/newsevents/speech/barr20230710a.htm.
50 OCC, Federal Reserve, “Regulatory Capital Rules,” 83 Federal Register 17317, April 19, 2018,
https://www.govinfo.gov/content/pkg/FR-2018-04-19/pdf/2018-08066.pdf.
51 The proposal was published in the Federal Register in September 2023. Federal Reserve, “Regulatory Capital Rule:
Risk-Based Capital Surcharges for Global Systemically Important Bank Holding Companies; Systemic Risk Report
(FR Y-15),” 88 Federal Register 60385, September 1, 2023, https://www.govinfo.gov/content/pkg/FR-2023-09-01/pdf/
2023-16896.pdf.
52 OCC, Federal Reserve, and FDIC, “Long-Term Debt Requirements for Large Bank Holding Companies, Certain
Intermediate Holding Companies of Foreign Banking Organizations, and Large Insured Depository Institutions,” 88
Federal Register 64524, September 19, 2023, https://www.govinfo.gov/content/pkg/FR-2023-09-19/pdf/2023-
19265.pdf. The proposal also makes technical changes to the TLAC rule. For a comparison, see Davis Polk,
“Comparison of the Long-Term Debt Proposal to the Existing TLAC Rule,” September 5, 2023,
https://www.davispolk.com/sites/default/files/2023-09/comparison-of-LTD-proposal-and-TLAC-rule.pdf.
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mainly accrued to the affected banks? Does the failure of three large banks in the
spring of 2023 (discussed below) warrant a reevaluation of EPR?
For more information, see CRS Report R47876, Enhanced Prudential Regulation of Large Banks,
by Marc Labonte.
Basel III Endgame53
Setting bank capital requirements is an iterative process. Requirements have repeatedly been
tweaked over the decades as problems emerge or policy priorities change. For example, in 2013
U.S. regulators began implementing “Basel III,” a new capital framework aimed at addressing
many of the issues believed to precipitate the global financial crisis that was negotiated by the
Basel Committee on Banking Supervision (BCBS), an international standard-setting body. A set
of BCBS recommendations from 2017 fill in some of the more technical details of Basel III and
are sometimes colloquially referred to as the Basel III Endgame.54
On July 27, 2023, the federal banking regulators jointly issued a proposed rule that would revise
large bank capital requirements.55 In addition to implementing the Basel III Endgame, the
proposal would implement (1) some of the recommendations that Fed Vice Chair Barr proposed
in a previous holistic capital review, and (2) certain changes responding to issues that arose when
three large banks failed in 2023. The proposal would apply to banks with over $100 billion in
assets—a threshold exceeded by all three failed banks. According to the proposal, its purpose is to
improve the consistency of capital requirements across banks, better match capital requirements
to risk, reduce their complexity, and improve transparency of banks’ financial conditions for
supervisors and the public.
In the United States, Category I and II banks (under the Fed’s 2019 rule implementing P.L. 115-
174, as discussed above) are currently required to calculate their requirements using two methods:
a standardized approach applicable to all banks and a specialized advanced approach that allows
the banks to model many of their own risks. Although internal models can potentially be “gamed”
(i.e., designed in a way to allow a bank to hold less capital rather than accurately measure risk),
they can also model risk more sophisticatedly and be more tailored to a bank’s unique risk profile.
Following the Basel III Endgame, the proposed rule would reduce the use of internal models
through a new second standardized approach for advanced approaches banks called the expanded
risk-based approach. Other banks with over $100 billion in assets would be required to calculate
risk-weighted assets under two approaches for the first time. Despite the regulators’ intentions to
reduce complexity, many within the industry have criticized this dual approach to capital
requirements as unduly burdensome.
The proposal would also require banks with over $100 billion in assets to include unrealized
capital gains and losses on available-for-sale debt securities in their capital levels. Unrealized
capital losses were one of the primary causes of Silicon Valley Bank’s failure.56 The proposal
would also extend two capital requirements—the supplementary leverage ratio and
countercyclical capital buffer—to all banks with over $100 billion in assets.

53 This section draws from other CRS products coauthored with Andrew Scott.
54 BCBS, Basel III: Finalising Post-Crisis Reforms, December 2017, https://www.bis.org/bcbs/publ/d424.pdf.
55 OCC, Federal Reserve, and FDIC, “Regulatory Capital Rule: Amendments Applicable to Large Banking
Organizations and to Banking Organizations with Significant Trading Activity,” 88 Federal Register 64028, September
18, 2023, https://www.govinfo.gov/content/pkg/FR-2023-09-18/pdf/2023-19200.pdf. A summary, fact sheet, and
overview are available at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230727a.htm.
56 See the section entitled “Silicon Valley Bank (SVB) Failure.”
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One criticism of the proposal is that it is not capital neutral but, rather, would require subjected
banks to hold more capital. Although the proposal does not raise required capital ratios, the
regulators estimate that its effect on risk-weighted assets would increase the average binding
common equity capital level large banks are required to hold by 16%. Note that (1) this estimate
is an average, and the effects on any particular bank would differ; and (2) this is an estimate based
on past data—the actual effect would depend on future actions by the banks, including how they
responded to the rule. The proposal would have a larger capital effect on trading activities than on
lending, and it is estimated to have the largest effect on G-SIBs.
Policy issues going forward include the following:
• Is it appropriate to change capital standards in such a way that large banks are
required to hold more capital overall, or is the banking system already well
capitalized? How would the proposal affect their competitiveness with small
banks and nonbank financial firms? Would the proposal make the financial
system safer or needlessly restrict credit?
• Have domestic deviations from Basel standards led to inappropriate “gold
plating” of capital requirements? Does the requirement that large banks comply
with two sets of capital standards add unduly burdensome complexity, or does it
ensure a level playing field with smaller banks?
• Is the proposal appropriately tailored by exempting banks with under $100
billion in assets? Or should it be further tailored to treat banks near the $100
billion threshold differently from G-SIBs?
• Would the proposed changes to the risk weights have negative effects on specific
sectors or activities, such as mortgage lending, activities with fee-based income,
trading activities, and tax equity renewable energy projects?
• Does the Fed’s leading role in crafting international standards for bank regulation
and the financial system and its domestic implementation of those standards
through the rulemaking process improperly bypass Congress’s policymaking
authority, or is Congress’s ability to overturn the Fed’s regulatory actions on an
expedited basis through the Congressional Review Act sufficient to safeguard
congressional prerogatives? Should the bank regulators have publicly provided
more analysis independent of BCBS’s to justify the proposal?
For more information, see CRS Report R47855, Bank Capital Requirements: Basel III Endgame,
by Marc Labonte and Andrew P. Scott.
Silicon Valley Bank (SVB) Failure
The spring of 2023 featured the second (First Republic), third (SVB), and fifth (Signature) largest
bank failures in U.S. history (as measured by asset size in nominal dollars).57 Combined, these
failures are expected to ultimately impose over $30 billion in losses on the Federal Deposit
Insurance Corporation (FDIC).58 To prevent the first two failures from causing a broader run on

57 CRS analysis of data from FDIC, “BankFind Suite,” https://banks.data.fdic.gov/. In addition, the failure of Credit
Suisse, a foreign G-SIB, was avoided through a Swiss-government-assisted takeover by UBS in the spring of 2023.
58 FDIC, Office of Inspector General, Material Loss Review of First Republic Bank, November 28, 2023,
https://www.fdicoig.gov/reports-publications/bank-failures/material-loss-review-first-republic-bank; FDIC, “Final Rule
on Special Assessment Pursuant to Systemic Risk Determination,” November 16, 2023, https://www.fdic.gov/news/
financial-institution-letters/2023/fil23058.html.
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the banking system, the FDIC invoked its rarely used systemic risk exception to guarantee all
uninsured depositors at those two banks.59
Of the three failed institutions, only SVB was subject to EPR and had the Fed as its primary
regulator, because Signature and First Republic were not members of the Federal Reserve system
and because EPR does not apply to banks that are not structured as BHCs.60 A post-mortem report
by the Fed attributes SVB’s failure to poorly managed interest rate risk, liquidity risk (in its case,
an overreliance on uninsured deposits), and concentration risk (a lack of diversification in its
customers and portfolio). Its risk management capacity did not keep pace with its rapid growth.61
Members of Congress debated whether P.L. 115-174 and the Fed’s implementing rule in 2019
contributed to SVB’s failure, which was sudden, unexpected, destabilizing, and disorderly—what
EPR is intended to prevent.62 The answer to that question depends primarily on whether this
episode was a failure of regulation (inadequate safety and soundness rules), supervision (faulty
application of existing rules by supervisors), or both. (Fed Vice Chair Barr testified that “I think
that anytime you have a bank failure like this, bank management clearly failed, supervisors failed,
and our regulatory system failed.”63) EPR imposes regulatory standards but not supervisory
standards. At its own discretion, the Fed has also tiered supervision by size and complexity, and
the Fed has chosen to align its supervisory programs with the EPR thresholds both before and
after they were changed by P.L. 115-174.64
Large banks face quantitative liquidity and capital rules under EPR. P.L. 115-174 raised the
mandatory EPR threshold from $50 billion to $250 billion in assets, which is the level that the
Fed chose to apply certain requirements—or more stringent versions of other requirements—to
banks with over $250 billion or other metrics of systemic importance. Because SVB was under
$250 billion in assets when it failed, it was never subject to these requirements. P.L. 115-174 gave
the Fed discretion to apply tailored requirements to banks with $100 billion to $250 billion in
assets, and the Fed applied some less stringent requirements at that threshold. SVB had over $100
billion in assets in 2020, but the Fed phased in compliance with those requirements slowly when
a bank crossed the threshold, so SVB was never subject to any EPR requirements before it failed.
Even if it had been subject to these rules, it is questionable whether most of them would have
addressed the specific causes of SVB’s failure.65
Interest rate risk could potentially have been captured earlier by a Basel III large bank
requirement (as opposed to a Dodd-Frank EPR requirement) to recognize unrealized losses on
available-for-trade debt securities in regulatory capital. Under the Fed’s rule implementing P.L.
115-174, banks and BHCs that were not Category I or II banks and did not have significant

59 See CRS In Focus IF12378, Bank Failures: The FDIC’s Systemic Risk Exception, by Marc Labonte.
60 Fed discount window lending to SVB is discussed in the section below entitled “Discount Window Lending to Failed
Banks in 2023.”
61 Federal Reserve, Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank, April 2023,
https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf.
62 See, for example, U.S. Congress, Senate Committee on Banking, Housing, and Urban Affairs, Examining the
Failures of Silicon Valley Bank and Signature Bank, 118th Cong., 1st sess., May 16, 2023; U.S. Congress, House
Committee on Financial Services, The Federal Regulators’ Response to Recent Bank Failures, 118th Cong., 1st sess.,
March 29, 2023.
63 House transcript, available at https://www.bgov.com/next/news/RSCEQ5073NCW.
64 Board of Governors of the Federal Reserve System, “Large Financial Institution Rating System Regulations K and
LL,” 83 Federal Register 58724, November 21, 2018, https://www.govinfo.gov/content/pkg/FR-2018-11-21/pdf/2018-
25350.pdf.
65 For more information, see the section entitled “Role of EPR in 2023 Bank Failures” in CRS Report R47876,
Enhanced Prudential Regulation of Large Banks, by Marc Labonte.
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foreign exposures could opt out of this requirement, which SVB did. The Fed reports that under
the pre-P.L. 115-174 framework, SVB would have been required to recognize unrealized losses as
of the second quarter of 2020.66 Had unrealized capital losses been recognized, it would have
reduced SVB’s capital under one measure by $1.9 billion at the end of 2022, but SVB would have
remained well capitalized even with this loss. Further, most of SVB’s unrealized losses were
associated with held-to-maturity assets, which do not have to be recognized in capital under
current (or proposed) rules.
At the same time, many of the most important regulatory and supervisory standards applied to
large banks are not the product of EPR—they apply to all banks. Interest rate risk, concentration
risk, liquidity risk, and risks associated with rapid growth are not unique to SVB or large banks.
These are all standard risks facing banks that prudential regulation is intended to keep in check,
and regulators have a long history of supervising all banks for them. For example, Aaron Klein,
senior fellow at the Brookings Institution, noted “at least four classic red flags of the bank’s
conduct that should have sent the alarm bells ringing.”67
In terms of supervision, the Fed’s SVB report details how “SVB’s foundational problems were
widespread and well-known, yet core issues were not resolved, and stronger oversight was not put
in place.” When SVB failed, it had 31 outstanding Matters Requiring Attention (MRAs) and
Matters Requiring Immediate Attention (MRIAs) issued by Fed examiners regarding safety and
soundness, risk management, liquidity, interest rate risk, and technology.68 Some are on topics
directly linked to the reasons for SVB’s failure, such as six on liquidity risk issued in November
2021 (and still outstanding at the time of its failure). Several outstanding MRIAs dated back to
2020 or 2021. Since 2019, 54 MRAs and MRIAs had been issued in those areas. Nonetheless,
Fed supervisors assigned ratings that “did not fully reflect [SVB’s] vulnerabilities.” For example,
SVB did not receive a deficient rating in any area until 2022. The deficient rating should have
triggered a formal enforcement action but did not. The report attributes these supervisory failings
to SVB’s rapid growth resulting in a slow transition to the heightened supervision applied to large
banks, a reduction in supervisory hours spent on SVB, and a perception by examiners that there
was “an informal shift in tone” from the Fed vice chair of supervision at the time69 that led to
“pressure to reduce burden on firms, meet a higher burden of proof for a supervisory conclusion,
and demonstrate due process when considering supervisory actions.”70
Congress has largely deferred to the Fed on its supervisory practices in the past, reflecting its
status as a highly independent, self-funded agency. In response to SVB’s failure, the Senate
Banking Committee reported S. 2190 on June 22, 2023, which would, among other things, make
it easier for regulators to claw back executive compensation from failed banks and enhance
reporting requirements for Fed supervision. The House Financial Services Committee ordered

66 Under the previous framework, SVB would have had to recognize unrealized losses, because it would have been
considered an advanced approaches bank on account of having more than $10 billion in foreign exposure.
67 Aaron Klein, “SVB’s Collapse Exposes the Fed’s Massive Failure to See the Bank’s Warning Signs,” Brookings
Institution, March 16, 2023, https://www.brookings.edu/opinions/svbs-collapse-exposes-the-feds-massive-failure-to-
see-the-banks-warning-signs/.
68 Key supervisory findings, referred to as Matters Requiring Attention (MRAs), are required to be included in all
supervisory communication documents, and the examiner is required to discuss any outstanding MRAs in the
supervisory report. Crucially, examiners are required to specify a time frame for the bank to complete corrective action.
Some findings are more critical and urgent to address and are considered Matters Requiring Immediate Attention
(MRIAs).
69 Randal Quarles was vice chair for supervision from October 2017 to October 2021 and continued as governor until
December 2021. Michael Barr became vice chair in July 2022.
70 Federal Reserve, Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank, April 2023,
https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf.
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H.R. 3556 to be reported on May 24, 2023, which would, among other things, enhance reporting
requirements for Fed supervision. (For more information, see the section below entitled “Fed
Independence and Congressional Oversight.”)
Policy issues going forward include the following:
• Should Congress revisit the scope or applicability of EPR, such as the asset
threshold for mandatory application of EPR, following the large bank failures of
2023?
• Should the regulatory treatment of uninsured deposits or unrealized losses on
securities be changed in light of the 2023 bank failures? Would the Basel
Endgame proposal go far enough or too far in addressing unrealized losses?
• In light of supervisory shortcomings identified by the Fed in SVB’s failure,
should Congress defer to the Fed on strengthening supervisory practices or take a
more active role? Does Congress have sufficient aggregate information about
bank supervision to support its oversight role?
For more information, see CRS Insight IN12129, Silicon Valley Bank, Signature Bank, and P.L.
115-174: Part 1 (Background and Policy Options), by Marc Labonte; CRS Insight IN12130,
Silicon Valley Bank, Signature Bank, and P.L. 115-174: Part 2 (Issues Surrounding Their
Failures), by Marc Labonte; CRS Insight IN12232, Banks’ Unrealized Losses, Part 2: Comparing
to SVB, by Marc Labonte; CRS In Focus IF12454, Bank Failures and Congressional Oversight,
by Marc Labonte.
Climate Change
The Fed has increased its focus on financial and economic risks posed by climate change in
recent years. In 2020, the Fed joined the Network for Greening the Financial System, a group of
over 80 central banks and regulators focused on climate-related risks. In 2021, the Fed created
two internal committees related to climate risk.
In the past, the Fed has stated that climate risk is covered by its existing supervisory guidance on
underwriting, which requires bank management to take into account all relevant risks. Further, it
believes its guidance on managing risk from extreme weather events is well equipped for
managing an increase in extreme weather events caused by climate change.71 Building on existing
regulatory practices, in October 2023, the Fed and other banking regulators issued joint guidance
that provides “a high-level framework for the safe and sound management of exposures to
climate-related financial risks” for banks with over $100 billion in assets. According to the
regulators, “The final principles neither prohibit nor discourage large financial institutions from
providing banking services to customers of any specific class or type.”72
Members of Congress have debated whether large banks should be subject to “climate stress
tests.” Current stress tests are meant to evaluate whether large banks would remain well
capitalized in a scenario of extreme economic and financial downturn over a three-year period.
Annual capital requirements for large banks are based in part on stress test results. Under a true
climate stress test, capital requirements would be based in part on a bank’s exposure to climate

71 Jerome Powell, letter to the Hon. Brian Schatz, April 18, 2019, https://www.schatz.senate.gov/imo/media/doc/
Chair%20Powell%20to%20Sen.%20Schatz%204.18.19.pdf.
72 Federal Reserve, FDIC, OCC, “Agencies Issue Principles for Climate-Related Financial Risk Management for Large
Financial Institutions,” joint press release, October 24, 2023, https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20231024b.htm.
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risk. One challenge to climate stress testing is that time horizons are much longer than in current
stress tests and subject to significant uncertainty. In 2023, the six largest banks participated in a
Fed-led pilot “climate scenario analysis” to “help identify potential risks and promote risk
management practices.”73 This exercise does not have any implications for capital requirements
or supervision.
The Fed has not been legislatively tasked to focus on climate change, but it has argued that
climate change has implications for economic and financial stability. For example, a 2021 FSOC
report, which the Fed is a member of, identified climate change as an emerging and increasing
threat to financial stability and made a number of recommendations for agency actions, which
include the actions the Fed has taken to date.74
Critics argue that due to the gradual nature of climate change, it is unlikely to pose systemic risk
because financial markets will have time to adjust and reprice assets and credit to reflect higher
disaster risk. They are also concerned that climate risk policies will unfairly steer credit away
from fossil fuel industries. They argue that climate change policy is best addressed by Congress
and that a focus on climate change distracts the Fed from its mission.
Policy issues for Congress going forward include the following:
• Should the Fed be doing more to combat climate change? Or is climate change
outside the Fed’s purview and a distraction from its statutory duties? If Congress
wants the Fed to address climate change, should those responsibilities be added
through legislation?
• Should the Fed continue to study the economic and financial effects of climate
change to understand how monetary policy and financial stability might be
affected by climate change or policies to prevent climate change? Does climate
risk expose banks to unmanageable financial risks or the financial system to
systemic risk?
• Are climate stress tests an appropriate tool for managing climate risk? If so,
should stress tests be limited to climate risk or also include transition risks
imposed by potential policy changes, as the Fed is not responsible for and cannot
predict climate policy?
Mergers75
Mergers and acquisitions (M&As) involving banks—or, more technically, insured depository
institutions—must comply with a number of statutory requirements.76 These vary based on the
type of bank but are broadly similar. Bank M&As need approval by the Fed when they involve
banks or BHCs regulated by the Fed. (When banks with different charter types are merging,

73 Federal Reserve, “Federal Reserve Board Provides Additional Details on How Its Pilot Climate Scenario Analysis
Exercise Will Be Conducted and the Information on Risk Management Practices That Will Be Gathered over the
Course of the Exercise,” press release, January 17, 2023, https://www.federalreserve.gov/newsevents/pressreleases/
other20230117a.htm.
74 FSOC, “Financial Stability Oversight Council Identifies Climate Change as an Emerging and Increasing Threat to
Financial Stability,” press release, October 21, 2021, https://home.treasury.gov/news/press-releases/jy0426.
75 This section draws from other CRS products coauthored with Andrew Scott.
76 12 U.S.C §1841 et seq and 12 U.S.C. §1828.
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approval by more than one regulator can be required.) Most of the largest U.S. banks are
structured as BHCs.77
Regulators review M&A proposals for, among other things, their effects on competition. For
example, bank regulators and the Department of Justice (DOJ) review proposals for their effects
on market power in both national and local markets under joint guidelines developed in 1995.78
DOJ has the authority to block an M&A on antitrust grounds.79 It is not uncommon for a bank to
divest branches before an M&A is approved to allay concerns about market power.80 M&As are
also subject to statutory concentration limits to curb market power—the merged entity may not
hold more than 10% of total deposits nationally or 30% of deposits in any state. In addition, for
BHCs, the merged entity cannot hold over 10% of all financial company liabilities nationally.
Regulators must also consider the “convenience and needs of the community” by seeking
public comment through public outreach hearings, for example. Notably, the entities merging
must resolve any issues related to consumer compliance or compliance with the Community
Reinvestment Act. The M&A approval process is one of regulators’ main tools to encourage
compliance with the act.81
Statutes lay out other factors regulators must consider, including the following:
• Financial resources—would the merged institution have adequate capital and
other resources?
• Managerial resources—do the banks’ officers, directors, and principal
shareholders have competence, experience, and integrity?
• Anti-money laundering (AML)—are the banks effective at combatting money
laundering?
• Financial stability—does the merger pose systemic risk to the U.S. banking or
financial system?
There are also restrictions on how certain acquisitions can be financed.
Regulators have discretion to reject M&A applications, require changes to proposals, and grant
conditional approval. They can also waive certain requirements in certain circumstances, such as
for a bank in default or in danger of default. For example, on May 1, 2023, the FDIC announced
that JPMorgan Chase acquired First Republic through a purchase and assumption agreement after
First Republic was taken into FDIC receivership.82 Because the acquisition was a purchase and

77 BHCs may also acquire nonbank financial firms. The regulatory process described in this section, however, is
focused on M&As involving two banks. States may also have requirements, beyond the scope of this report, but federal
law allows state regulators to block M&As only on limited grounds.
78 Department of Justice, “Bank Merger Competitive Review—Introduction and Overview (1995),”
https://www.justice.gov/atr/bank-merger-competitive-review-introduction-and-overview-1995.
79 This authority resulted from a 1963 Supreme Court case, United States v. Philadelphia National Bank, 374 U.S. 321.
See Assistant Attorney General Jonathan Kanter, keynote address at “Promoting Competition in Banking,” event at the
Brookings Institution’s Center on Regulation and Markets, June 20, 2023, https://www.justice.gov/opa/speech/
assistant-attorney-general-jonathan-kanter-delivers-keynote-address-brookings-institution.
80 For example, on 16 occasions between 2006 and 2017, the Fed required M&A applicants to sell off branches. Federal
Reserve, letter to the Hon. Elizabeth Warren, May 10, 2018, p. 3, https://www.warren.senate.gov/imo/media/doc/
Powell%20Response%20re%20Mergers.pdf.
81 12 U.S.C. §2901 et seq. For more information on the act, see CRS Report R43661, The Effectiveness of the
Community Reinvestment Act, by Darryl E. Getter.
82 FDIC, “JPMorgan Chase Bank, National Association, Columbus Ohio Assumes All the Deposits of First Republic
Bank, San Francisco, California,” press release, May 1, 2023, https://www.fdic.gov/news/press-releases/2023/
pr23034.html.
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assumption of a failing bank, the competition requirements and the concentration limit were
waived.83
On July 9, 2021, President Biden issued an executive order on competition, which, among other
things, encourages the Attorney General and the federal banking regulators “to review current
practices and adopt a plan, not later than 180 days after the date of this order, for the revitalization
of merger oversight.”84 No plan was released in that time frame. In September 2022, Vice Chair
Barr announced that the Fed was reviewing its approach to approving bank mergers, which may
lead to future rulemaking.85
Congress has been interested in mergers among large banks in recent years, particularly how they
might affect competition. There are two distinct concerns: (1) that mergers will lead to a dearth of
community banks and (2) that mergers will lead to a handful of banks that are “too big to fail”
and have too much market share for markets to be competitive.
There is a long-term trend of consolidation in the banking industry, which has mainly occurred
through M&A. This trend was driven by the gradual removal of state and federal restrictions on
operating multiple branches and banks, notably across state lines. In other words, legal
restrictions had kept banks artificially small. Once these restrictions were removed in the 1980s
and 1990s, economies of scale made it profitable for banks to expand, and many small banks
combined, with annual mergers peaking in 1997. Consolidation has continued throughout the 21st
century. From 2001 to the third quarter of 2023, the number of FDIC-insured institutions (which
includes commercial banks and savings associations) fell from 9,613 to 4,614. One potential
explanation for continued consolidation is that growing bank use of information technology
creates greater economies of scale.
Most mergers involve small banks,86 but there have been a number of high-profile mergers in
recent years involving “regional banks”—those that are second-largest in size after the G-SIBs
and are typically based in a particular region—that have increased their size and reduced their
number. For example, every one of the 10 largest banks (as measured by bank subsidiary assets)
that is not a G-SIB as of September 2023 has acquired or applied to acquire a bank in recent
years.
Some have criticized the merger process as too lax. They point to the fact that none of the three
regulators has denied a merger application in recent years and characterize the approval process
as a mere “rubber stamp.” Regulators disagree and describe the application process as an iterative
one, where applicants are given the opportunity to provide more information or address
shortcomings in their applications before judgment is passed. Sometimes applicants withdraw or
never formally submit merger applications because they view them as unlikely to be approved.87

83 See OCC, letter to JPMorgan Chase Bank, May 1, 2023, https://www.occ.treas.gov/topics/charters-and-licensing/
app-by-jp-morgan-chase-bank.pdf.
84 The White House, “Executive Order on Promoting Competition in the American Economy,” July 9, 2021,
https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-
competition-in-the-american-economy/.
85 Vice Chair for Supervision Michael S. Barr, “Making the Financial System Safer and Fairer,” speech, September 7,
2022, https://www.federalreserve.gov/newsevents/speech/barr20220907a.htm.
86 FDIC, “Community Bank Mergers Since the Financial Crisis: How Acquired Community Banks Compared with
Their Peers,” FDIC Quarterly, vol. 11, no. 4 (2017), https://www.fdic.gov/analysis/quarterly-banking-profile/fdic-
quarterly/2017-vol11-4/fdic-v11n4-3q2017-article2.pdf.
87 For example, in 2023, TD Bank and First Horizon withdrew their merger application after a prolonged delay when
they became convinced that approval would not be forthcoming soon. See Jim Dobbs, “First Horizon, TD Bank Call
Off Long Delayed Merger,” American Banker, May 4, 2023, https://www.americanbanker.com/news/first-horizon-td-
(continued...)
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Because the merger application process is iterative, it can be lengthy, and other critics complain
that it is too slow and vulnerable to interference from outside groups. The regulators have internal
guidelines on how long the approval process should take.
Policy issues for Congress going forward include the following:
• Have recent mergers involving large banks reduced competition in the banking
industry? Are mergers undermining community banks, or do mergers between
community banks benefit consumers because of economies of scale and greater
geographic reach? Do mergers between regional banks benefit consumers for the
same reasons, and do they harm competition or promote it because it allows them
to better compete with G-SIBs?
• Is the absence of any formal rejections a sign that the merger process is too lax
relative to the statutory requirements in recent years, or is it a sign that the
iterative process is working as regulators intend?
• Does the merger approval process take longer than is warranted? Are regulators
transparent about why some mergers are delayed or never approved? Does the
“convenience and needs of the community” factor allow special interests to
extract unrelated community benefit plans from the merging banks that are not
officially required?
• Because independent bank regulators did not complete a review of the merger
process within the time frame of the executive order, should Congress step in if
changes to the current merger process are desired?
For more information, see CRS In Focus IF11956, Bank Mergers and Acquisitions, by Marc
Labonte and Andrew P. Scott.
Cryptocurrency and Banking
Some banks have expressed interest in offering services related to cryptocurrencies and other
digital assets (crypto).88 Participation could take the form of traditional banks providing some
types of cryptocurrency services or cryptocurrency firms seeking bank charters. The Fed, OCC,
and FDIC have identified areas where (traditional or crypto) banks could seek to engage in
crypto-related activities, such as issuing payment stablecoins, providing custody services,
facilitating crypto transactions for customers, making loans using crypto as collateral, and holding

bank-call-off-long-delayed-merger. In 2022, State Street announced that it was no longer pursuing an acquisition of
Brown Brothers Harriman’s Investor Services business. It stated, “After consideration of both regulatory feedback and
potential transaction modifications to address that feedback, State Street has determined that the regulatory path
forward would involve further delays, and all necessary approvals have not been resolved.” State Street, a BHC, did not
specify which regulator’s feedback it was basing its decision on. State Street, “Statement from State Street Corporation
on Brown Brothers Harriman Investor Services Acquisition,” press release, November 30, 2022,
https://newsroom.statestreet.com/press-releases/press-release-details/2022/Statement-from-State-Street-Corporation-
on-Brown-Brothers-Harriman-Investor-Services-Acquisition/default.aspx.
88 For background, see CRS In Focus IF12405, Introduction to Cryptocurrency, by Paul Tierno.
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crypto89 on their own balance sheets.90 In addition, banks can offer traditional banking services,
such as loans or deposit accounts, to cryptocurrency firms.
Extreme volatility in crypto values and several high-profile scandals involving collapses in crypto
firms, crypto scams, and thefts point to the dangers that crypto could pose for bank safety and
soundness and their customers if risks are not properly managed. Broadly, bank regulators’
enthusiasm for potential bank participation in crypto markets has waxed and waned in recent
years in response to changes in agency leadership and crypto market events. Following the failure
of one of the largest crypto exchanges (FTX) in 202291 and the liquidation of two banks
(Silvergate and Signature) with crypto exposure in 2023, the bank regulators’ approach to crypto
arguably shifted from ambivalence to greater caution and skepticism.
Policy issues surrounding stablecoins are discussed below in the section entitled “Payment
Stablecoins.”
For more information, see CRS In Focus IF12320, Crypto and Banking: Policy Issues, by Marc
Labonte, Andrew P. Scott, and Paul Tierno; CRS Insight IN12148, The Role of Cryptocurrency in
the Failures of Silvergate, Silicon Valley, and Signature Banks, by Paul Tierno.
Traditional Bank Participation in Crypto
Banks are closely regulated for safety and soundness, consumer protection, and AML, among
other things, and bank regulators have broad authority to block or restrict any bank activity that is
not consistent with these principles. To date, the bank regulators have not promulgated any rules
through the notice-and-comment process to regulate crypto, relying instead on the existing
regulatory framework. To interpret how crypto fits in the existing framework, the Fed, sometimes
jointly with the other banking agencies, issued a series of guidance documents in 2022 and 2023.
The guidance lays out that banks cannot engage in crypto activities until they have been explicitly
approved by their regulators.92 The regulators have primarily taken a safety and soundness
approach to banks’ participation in crypto markets. Thus, instead of blanket approval or
disapproval of specific crypto-related activities, regulators have required banks to demonstrate on
a case-by-case basis that they can engage in given activities in a safe and sound manner. In
addition, banks must demonstrate that the activity is legally permissible and that they are
complying with all applicable laws and regulations.93 Generally, activities are permissible only if
they are part of or incidental to the business of banking as laid out by statute, regulation, and
precedent.94

89 Although U.S. regulators have not yet determined under what circumstances banks could hold crypto assets on their
balance sheets, the BCBS (an international forum to devise regulatory standards) is in the process of formulating
international capital standards for bank exposures to crypto. Typically, U.S. bank regulators have implemented Basel
standards through the domestic rulemaking process. BCBS, Second Consultation on the Prudential Treatment of
Cryptoasset Exposures, June 2022, https://www.bis.org/bcbs/publ/d533.pdf.
90 Board of Governors of the Federal Reserve System, FDIC, OCC, “Joint Statement on Crypto-Asset Policy Sprint
Initiative and Next Steps,” November 23, 2021, https://www.federalreserve.gov/newsevents/pressreleases/files/
bcreg20211123a1.pdf.
91 See CRS Insight IN12047, What Happened at FTX and What Does It Mean for Crypto?, by Paul Tierno.
92 Federal Reserve, “Engagement in Crypto-Asset-Related Activities by Federal Reserve-Supervised Banking
Organizations,” August 16, 2022, https://www.federalreserve.gov/supervisionreg/srletters/SR2206.htm.
93 Board of Governors of the Federal Reserve System, FDIC, and OCC, “Joint Statement on Crypto-Asset Risks to
Banking Organizations,” January 3, 2023, https://www.federalreserve.gov/newsevents/pressreleases/files/
bcreg20230103a1.pdf.
94 12 C.F.R. 7.1000-7.1030.
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The bank regulators identified a number of risks widely associated with crypto that they believe
cannot easily be mitigated, including the risk of fraud, legal uncertainty, contagion, price
volatility, unfair and deceptive practices, and inaccurate and misleading representations. These
create high hurdles for regulatory approval, placing the “burden of proof” on banks to
demonstrate that these concerns have been adequately addressed. More specifically, they “believe
that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open,
public, and/or decentralized network, or similar system is highly likely to be inconsistent with
safe and sound banking practices.”95
Although bank regulators have strong and broad authority to manage risk taking by banks, bank
entry into crypto activities would not give bank regulators authority to regulate risk in the
underlying crypto markets, as is true for any industry. This inherently limits the extent that those
risks can be effectively managed by banks. Former Fed Vice Chair Lael Brainard argued, “It is
important for banks to engage with beneficial innovation and upgrade capabilities in digital
finance, but until there is a strong regulatory framework for crypto finance, bank involvement
might further entrench a riskier and less compliant ecosystem.”96
A blanket ban on providing traditional banking services to crypto firms would have been
particularly problematic because of controversies over whether banks can deny services to
specific industries.97 In this case, the regulators have repeatedly emphasized that banks “are
neither prohibited nor discouraged from providing banking services to customers of any specific
class or type, as permitted by law or regulation.” However, the regulators also emphasized they
“have significant safety and soundness concerns with business models that are concentrated in
crypto-asset-related activities or have concentrated exposures to the crypto-asset sector.”98 They
also identified traditional deposits by crypto firms that depend on customer activity or deposits
that are stablecoin reserves as posing “heightened liquidity risks to banking organizations due to
the unpredictability of the scale and timing of deposit inflows and outflows.”99
For banks under its jurisdiction, the Fed’s approach is to defer to the OCC and FDIC where those
regulators have made a determination on what activity is permissible under law and laid out
limitations surrounding the activity. The Fed stated that where there is a “clear and compelling
rationale” it could deviate from standards set by the OCC and FDIC and approve an activity, but
it stated that to date it has not done so.100 When the OCC or FDIC has not made a determination, a
bank could not carry out an activity until the Fed had granted approval. In any case, the Fed will
grant approval only when it is satisfied that the activity can be carried out in a safe and sound
manner. The Fed specifically stated that it will “presumptively prohibit” banks from holding most
crypto assets as principal (as opposed to holding it on behalf of a customer), as it has not found

95 Board of Governors of the Federal Reserve System, FDIC, and OCC, “Joint Statement on Crypto-Asset Risks to
Banking Organizations.”
96 Vice Chair Lael Brainard, “Crypto-Assets and Decentralized Finance Through a Financial Stability Lens,” speech,
July 8, 2022, https://www.federalreserve.gov/newsevents/speech/brainard20220708a.htm.
97 See CRS Legal Sidebar LSB10571, Office of the Comptroller of the Currency’s Fair Access to Financial Services
Rule, by M. Maureen Murphy.
98 Board of Governors of the Federal Reserve System, FDIC, and OCC, “Joint Statement on Crypto-Asset Risks to
Banking Organizations.”
99 Board of Governors of the Federal Reserve System, FDIC, and OCC, “Joint Statement on Liquidity Risks to Banking
Organizations Resulting from Crypto-Asset Market Vulnerabilities,” February 23, 2023,
https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20230223a1.pdf.
100 The Fed refers to this as a “rebuttable presumption” that an activity is not permitted if the FDIC or OCC have found
it to not be permitted. Board of Governors of the Federal Reserve System, “Policy Statement on Section 9(13) of the
Federal Reserve Act,” 88 Federal Register 7848, February 7, 2023, https://www.govinfo.gov/content/pkg/FR-2023-02-
07/pdf/2023-02192.pdf.
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any statutory authority for banks to do so and does not believe that banks could do so in a safe
and sound manner.101 (For the Fed’s view on bank participation in stablecoin markets, see the
section below entitled “Payment Stablecoins.”)102
The Fed does not keep a public record of what crypto activities it has approved or disapproved at
banks under its jurisdiction, so it is hard to gauge the extent that banks are currently involved in
crypto. There are examples where the Fed has acknowledged that it has approved such activities,
such as crypto custody services by the Bank of New York Mellon. In that case, the Fed stated that
risks are primarily being addressed through the supervisory process.103
In August 2023, the Fed created a Novel Activities Supervision Program as a dedicated group to
supervise banks’ technology-driven partnerships, crypto activities, use of distributed ledger
technology, and provision of banking services to crypto and fintech firms. The group supervises
banks alongside its existing supervisory team.104
Permissible activities for banks can be laid out explicitly in law or, when the law is silent, be
determined by the bank regulators. If Congress disagrees with the regulators’ approach, it could
explicitly allow or prohibit crypto activities through legislation or set parameters around the
activities that expand or reduce bank involvement. So long as bank regulators remain convinced
that certain crypto activities are incompatible with safety and soundness and AML requirements,
however, regulators may remain reluctant to allow banks to engage in crypto activities, even if
Congress identified those activities as permissible.
The House Financial Services Committee on July 26, 2023, and the House Agriculture
Committee on July 27, 2023, ordered to be reported H.R. 4763, which would, among other things,
confirm that banks may provide custody services for crypto and other digital assets and prohibit
the bank regulators from imposing capital requirements that would discourage banks from
offering custody services for crypto.105
Policy issues going forward include the following:
• Are crypto activities inherently too risky for banks or BHCs to participate in, as
evidenced by the failures of banks with crypto exposure in 2023? Are some types
of crypto activities less risky or easier to regulate than others? Do crypto
activities pose more risk to consumers and financial stability if they are inside or
outside of the banking system? Would bringing crypto into the bank regulatory

101 Board of Governors of the Federal Reserve System, “Policy Statement on Section 9(13).”
102 Alternatively, a BHC might choose to place crypto-related activities in a nonbank subsidiary that is legally separate
from the BHC’s bank subsidiaries. Generally speaking, BHCs may own nonbank subsidiaries so long as the business of
those subsidiaries is financial in nature, incidental to finance, or complementary to finance. To do so, BHCs must elect
to become financial holding companies and meet certain regulatory requirements. As the regulator of BHCs, the Fed
would have limited authority over the nonbank subsidiary, which is even more limited if the subsidiary had another
primary regulator, such as the Securities and Exchange Commission. Under source-of-strength requirements, the Fed
would have authority to require that the subsidiary not place the safety and soundness of the bank subsidiaries or
holding company at risk. Activities that are financial in nature are laid out in Title 12, Section 225.86, of the Code of
Federal Regulations. If an activity has not already been identified as permissible, the Fed would have to approve it.
103 Defendant Board Of Governors Of The Federal Reserve System’s Response To Plaintiff’s Notice And Submission
Of Supplemental Authority, Custodia Bank, Inc., Plaintiff, v. Board Of Governors Of The Federal Reserve System &
Federal Reserve Bank Of Kansas City, Case 1:22-cv-00125-SWS Document 99, October 19, 2022,
https://assets.law360news.com/1541000/1541860/https-ecf-wyd-uscourts-gov-doc1-20712233928.pdf.
104 Federal Reserve, “Creation of Novel Activities Supervision Program,” August 8, 2023,
https://www.federalreserve.gov/supervisionreg/srletters/SR2307.htm.
105 For more information, see CRS Insight IN12223, An Overview of H.R. 4763, Financial Innovation and Technology
for the 21st Century Act, by Paul Tierno and Eva Su.
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umbrella reduce risks or legitimize an industry that is inherently harmful to
consumers and the economy?
• Are bank regulators applying the same standards in their approval of crypto
activities of traditional banks and crypto firms with bank charters? Are limits on
traditional bank services provided to the crypto industry necessary from a safety
and soundness perspective, or are they unfairly discriminating against the crypto
industry? Is rulemaking needed to ensure equal treatment, or are the current rules
well suited to recent developments?
• Are crypto activities part of or incidental to the business of banking as required
for it to be a permissible activity? Does crypto provide some public benefit or
purpose that warrants bringing it inside the federal bank safety net? Should
Congress make it explicit that they are or are not permissible activities? Should
Congress preempt regulatory action to ensure that banks may or may not
participate in certain aspects of crypto markets?
Crypto Firms Seeking Bank Charters
Some crypto firms have received trust charters or other special purpose charters from the OCC or
state bank regulators, most notably a special purpose depository institution (SPDI) charter from
the state of Wyoming.106 The OCC or state granting the charter could potentially impose limits on
activities that the firm could engage in, such as deposit taking. Generally, banks that do not accept
insured deposits are not subject to all of the same regulations as banks that accept deposits are
and would not have a primary federal regulator unless they are federally chartered or are
members of the Federal Reserve system. State-chartered institutions, including those with
nontraditional charters, have the option to apply to become state member banks, in which case the
Fed would become their primary federal regulator. Custodia is a Wyoming SPDI focused on
crypto that applied to join the Federal Reserve system, stating in its application that it did not
intend to seek federal deposit insurance. In 2023, the Fed denied Custodia’s membership
application. Some of the Fed’s reasons for denial were specific to deficiencies it identified in
Custodia’s application, but some had broader implications for crypto firms becoming state
member banks. In its denial, the Fed stated that Custodia had
an unprecedented business model that presents heightened risks involving activities that no
state member bank previously has been approved to conduct.… Given the speculative and
volatile nature of the crypto-asset ecosystem, the Board does not believe that this business
model is consistent with the purposes of the Federal Reserve Act.107
The denial also stated that
the future earnings prospects of the business model that Custodia has proposed—that is, an
uninsured, undiversified, crypto-asset-focused business model featuring a number of novel
and untested activities posing heightened risks—is inconsistent with approval.108
Some crypto firms are also interested in accessing a Fed master account, which would provide
direct access to the traditional payment system.109 Along with other nontraditional applicants,

106 For more information, see CRS Report R47014, An Analysis of Bank Charters and Selected Policy Issues, by
Andrew P. Scott.
107 Federal Reserve System, “Custodia Bank, Inc. Cheyenne, Wyoming, Order Denying Application for Membership,”
January 27, 2023, https://www.federalreserve.gov/newsevents/pressreleases/files/orders20230324a1.pdf.
108 Ibid.
109 See the section below entitled “Payments.”
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such as fintech firms, this has led to greater scrutiny on who should be granted a master
account.110 The Fed issued final guidance in August 2022 through the notice-and-comment
process explaining how it would evaluate master account applications.111 Applicants that are
federally insured depository institutions will receive the least scrutiny, institutions that are not
federally insured but are subject to prudential supervision by federal banking agencies or have
holding companies that are supervised by the Fed will receive more scrutiny, and eligible
institutions that are not federally insured and do not have holding companies supervised by the
Fed but have state or federal charters will receive the most scrutiny. Two applicants have had their
requests for master accounts rejected since December 2022—Custodia and a fintech firm. In
addition, at least five crypto firms (Bankwyse, Commercium Financial, and Kraken Financial—
each of whom have Wyoming SPDI charters—Protego, and Paxos112) have applications currently
pending.113 Custodia has filed a lawsuit against the Fed for rejecting its master account
application.114
Policy issues going forward include the following:
• Should crypto firms with federal or state bank charters be granted direct access to
the Fed’s discount window and master accounts?
• Should the Fed approve requests from state-chartered crypto firms to become
members of the Federal Reserve system?
Cannabis Banking
Many states have legalized marijuana, whereas it remains a Schedule I controlled substance under
federal law.115 As a result, it is a federal crime to grow, sell, or possess the drug. This disparity has
implications for banks offering financial services to cannabis businesses that are legal under state
law. AML laws prohibit financial institutions from handling the proceeds derived from marijuana
business activities and certain other activities that are illegal under federal law. The Fed and other
federal bank regulators enforce AML requirements for banks. Potential punishments for AML
violations and other violations of federal law leave some banks leery of offering financial services
to cannabis businesses operating in compliance with state law. If cannabis businesses are unable
to access traditional financial services, they may face higher borrowing costs and may be heavily
reliant on cash transactions, making them a target for theft.
To facilitate banks providing services to cannabis businesses, the Senate Banking Committee
reported the SAFER Banking Act (S. 2860) on September 28, 2023.116 Among other things, the
bill would prevent regulators from penalizing banks solely for offering banking services to

110 For more information, see CRS Insight IN12031, Federal Reserve: Master Accounts and the Payment System, by
Marc Labonte.
111 Federal Reserve, “Guidelines for Evaluating Account and Services Requests,” 87 Federal Register 51099, August
19, 2022.
112 Bank Reg Blog, “Talking Tier 3 Master Account Requests,” June 17, 2023, https://bankregblog.substack.com/p/
talking-tier-3-master-account-requests.
113 CRS search of Fed master accounts database at https://www.federalreserve.gov/paymentsystems/master-account-
and-services-database-access-requests.htm.
114 Kyle Campbell, “Custodia Amends Fed Lawsuit, Alleges ‘Coordinated Effort’ to Deny Master Account,” American
Banker, February 17, 2023, https://www.americanbanker.com/news/custodia-amends-fed-lawsuit-alleges-coordinated-
effort-to-deny-master-account.
115 For more information, see CRS Report R44782, The Evolution of Marijuana as a Controlled Substance and the
Federal-State Policy Gap, coordinated by Lisa N. Sacco.
116 In the 117th Congress, the House passed a similar bill, the SAFE Banking Act (H.R. 1996).
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cannabis businesses operating in compliance with state law. It would also provide legal protection
to the Fed and its employees in providing services, such as payment services, to banks serving
cannabis businesses operating in compliance with state law and allow the Fed to accept loans to
cannabis firms as collateral at the discount window. The bill would require that the bank
regulators clarify that offering banking services to businesses producing goods using hemp is
legal under federal law. The bill would prohibit bank regulators from requesting that banks
terminate customer accounts without a valid reason and solely on the basis of reputational risk.
Policy issues going forward include the following:
• Should banking services be made available for businesses engaged in an activity
that is legal under state law and illegal under federal law?
• Have cannabis businesses been harmed by federal barriers to banking access?
Have these barriers operated in practice as an effective deterrent to the legal use
of marijuana under state law?
• Is a legal safe harbor to banks providing services to cannabis businesses justified
absent a broader reform of federal cannabis laws? In other words, should banks
be singled out for legal protection when other participants in cannabis markets
continue to be exposed to prosecution under federal law?
For more information, see CRS Legal Sidebar LSB11076, Marijuana Banking: Legal Issues and
the SAFE(R) Banking Acts, by David H. Carpenter.
Payments
Because banks and select other institutions maintain master accounts at the Fed to hold their
reserves, those accounts can be used to facilitate interbank payments. To that end, the Fed
operates the following wholesale payment systems for those institutions:
• the Automated Clearinghouse (ACH) for wholesale credit and debit transfers,
• check clearing,
• Fedwire Funds Service for gross settlement of large value payments,
• Fedwire Securities Service for settlement of government and government agency
securities, and
• National Settlement Service for multilateral payment settlement among the
largest payment market participants.
• FedNow, a real-time settlement system that allows banks to offer real-time retail
payments, which launched in July 2023.117
The Fed offers intraday credit to participants in its payment services to help them avoid
settlement failure. It also acts as the federal government’s fiscal agent—federal receipts and
payments flow through Treasury’s accounts at the Fed.
The Fed also sets risk management standards for private sector wholesale payment systems,
which in some cases directly compete with the Fed’s payment systems.118 For example, the
Electronic Payments Network also operates an ACH network that is interoperable with the Fed’s
ACH. However, the Fed does not have plenary authority to regulate all aspects of payments, and

117 For more information, see CRS Insight IN12207, Federal Reserve Launches FedNow, by Marc Labonte.
118 Federal Reserve, Policy on Payment System Risk, March 19, 2021, https://www.federalreserve.gov/paymentsystems/
files/psr_policy.pdf.
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payment system participants that are not banks are not all under its jurisdiction.119 Title VIII of
the Dodd-Frank Act subjects payment, clearing, and settlement systems designated as
systemically important financial market utilities (FMUs) by the FSOC to enhanced supervision by
the Fed.120 Since 2012, the Fed has regulated two FMUs, the Clearing House Payments Company
and CLS Bank International. The Fed also regulates (in some cases, in conjunction with other
regulators) aspects of bank retail payments for consumer protection.
As noted above, access to Fed master accounts has become controversial in recent years, as
crypto and fintech firms with bank charters have applied. In the 117th Congress, Title LVIII,
Subtitle F, of the National Defense and Authorization Act for FY2023 (P.L. 117-263) required the
Fed to publicly release a quarterly list of institutions (excluding official institutions) that have
requested, been rejected for, or been granted master accounts. The Fed maintains a public
database to comply with this law.121
Current payment systems issues of interest to Congress are discussed below.
Payment Stablecoins
Stablecoins are cryptocurrencies that are tied in value to some reference currency.122 For example,
some stablecoins are set equal in value to the U.S. dollar. Some stablecoins are backed by assets
in an effort to maintain their stable value against the dollar. Stablecoins have many potential uses,
including to make retail payments, although stablecoins make up an insignificant fraction of total
payments currently. Stablecoins that are used—or, in some cases, have the potential to be used—
to make retail payments are referred to as payment stablecoins.
Stablecoins face run risk—stablecoin holders who wish to convert into dollars rely on the issuer’s
ability to meet redemption demands. If holders believe that the issuer is unable to meet all
redemption demands, then they benefit from being among the first to redeem. This can result in
runs that cause the stablecoin’s value to collapse because the underlying assets are of insufficient
value or because they are too illiquid to meet redemption demands promptly. Whether this run
risk should be regulated depends on whether there is some policy justification for addressing it.
Potential justifications include consumer protection, promoting innovation in payments, and
because run risk potentially poses systemic risk if stablecoins grow or become interconnected
with the traditional financial system, as FSOC has argued.123
In 2023, the Fed issued guidance that banks it regulates are permitted to issue dollar-denominated
tokens, such as payment stablecoins, if they receive approval from the Fed by demonstrating that
they can do so in a safe and sound manner. However, the Fed stated that it “generally believes
that issuing tokens on open, public, and/or decentralized networks, or similar systems is highly
likely to be inconsistent with safe and sound banking practices” because of operational,

119 Lael Brainard, “The Digitalization of Payments and Currency: Some Issues for Consideration,” Federal Reserve,
speech at the Symposium on the Future of Payments, Stanford Graduate School of Business, Stanford, CA, February 5,
2020.
120 Title VIII assigns payment, clearing and settlement systems a primary regulator, which can be the Fed, the
Securities and Exchange Commission, or the Commodity Futures Trading Commission, depending on the type of
system.
121 The database is available at https://www.federalreserve.gov/paymentsystems/master-account-and-services-database-
about.htm.
122 For background, see CRS In Focus IF11968, Stablecoins: Background and Policy Issues, by Eva Su.
123 FSOC, Report on Digital Asset Financial Stability Risks and Regulation, October 2022, https://home.treasury.gov/
system/files/261/FSOC-Digital-Assets-Report-2022.pdf.
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cybersecurity, run, and illicit finance risks.124 Arguably, the Fed has created an approval process
that rules out any stablecoin operating on an open decentralized network from ever being
approved. Bank regulators also identified deposits that are stablecoin reserves as posing
“heightened liquidity risks to banking organizations due to the unpredictability of the scale and
timing of deposit inflows and outflows.”125
Some Members of Congress from both parties on both the House Financial Services Committee
and the Senate Banking Committee, as well as the Treasury and banking regulators,126 have called
for legislation to regulate payment stablecoins. However, there is disagreement on how to
regulate them and what types of firms should be allowed to issue them. The House Financial
Services Committee ordered H.R. 4766, sponsored by Chair Patrick McHenry, as amended in the
nature of a substitute to be reported on July 27, 2023. It would provide a regulatory framework
specific to payment stablecoins. The bill would allow banks to issue stablecoins through
subsidiaries under the supervision of their primary regulators, including the Fed for state member
banks. The bill would also give the Fed rulemaking authority over nonbanks that issue
stablecoins.
Policy issues going forward include the following:
• Should payment stablecoins or all stablecoins be regulated for safety and
soundness? If so, would the Fed be the most appropriate regulator? For
regulatory purposes, can a workable legal distinction be made between payment
stablecoins and other stablecoins?
• Should banks, nonbanks, or both be permitted to issue stablecoins, given
financial stability concerns? If so, should bank issuance be limited to payment
stablecoins? Is legislation required in practice to allow banks to issue
stablecoins?
• Should stablecoins be backed by the federal safety net, including access to
federal deposit insurance, Fed master accounts, and the Fed’s discount window?
For more information, see CRS Insight IN12249, An Overview of H.R. 4766, Clarity for Payment
Stablecoins Act, by Paul Tierno and Andrew P. Scott; and CRS In Focus IF12450, Stablecoin
Policy Issues for the 118th Congress, by Paul Tierno.
Central Bank Digital Currency127
The recent proliferation of private digital currencies or cryptocurrencies, such as Bitcoin, has led
to questions of whether the Fed should create a central bank digital currency (CBDC)—a digital
dollar that would share some of the features of these private digital currencies.
In addition, several countries are moving forward with plans to create CBDCs. According to a
survey from the Bank for International Settlements, “Nine out of 10 central banks are exploring

124 Board of Governors of the Federal Reserve System, “Policy Statement on Section 9(13).” In August 2023, the Fed
laid out an approval process for banks requesting permission to issue dollar tokens, noting the various risks that would
need to be addressed for approval to be granted. Federal Reserve, “Supervisory Nonobjection Process for State Member
Banks Seeking to Engage in Certain Activities Involving Dollar Tokens,” August 8, 2023,
https://www.federalreserve.gov/supervisionreg/srletters/SR2308.htm.
125 Board of Governors of the Federal Reserve System, FDIC, and OCC, “Joint Statement on Liquidity Risks to
Banking Organizations Resulting from Crypto-Asset Market Vulnerabilities.”
126 President’s Working Group on Financial Markets, FDIC, and OCC, Report on Stablecoins, November 1, 2021,
https://home.treasury.gov/system/files/136/StableCoinReport_Nov1_508.pdf.
127 This section draws from other CRS products coauthored with Rebecca Nelson.
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central bank digital currencies (CBDCs), and more than half are now developing them or running
concrete experiments.”128 For example, China has completed several digital currency trials in
major cities across the country, as well as cross-border trials with Hong Kong; the Eastern
Caribbean is piloting its digital currency (DCash) in four countries; and the European Central
Bank, Bank of Japan, and Swiss National Bank have all engaged in pilot testing. The proliferation
of CBDCs around the world has raised questions about whether the United States is falling
behind in the future of the financial system and whether that could affect its predominant “reserve
currency” status in international trade and payments.129
Digital payments and account access are already widespread in the United States. A key question
from an end-user (e.g., consumer or merchant) perspective is whether a CBDC would be faster,
more reliable, and less expensive than the current system. A CBDC would presumably allow for
real-time settlement of payments—a feature that is not currently ubiquitous in the U.S. payments
system but may become so now that the Fed has introduced FedNow, its real-time settlement
system. Whether payments using a CBDC would be less expensive than the status quo remains
unknowable until detailed proposals have been made. (Cross-border payments have been
identified as offering greater potential gains in cost and speed.)
From an end-user perspective, CBDC proposals range from a payment system similar to the
status quo to one that is fundamentally different. At one end of the spectrum of proposals, a
CBDC accessible only to banks may differ only slightly from the current system given that
wholesale payment systems are already digital. At the other end, proposals for consumers to be
able to hold CBDCs in accounts at the Fed would fundamentally change the role of the Fed and
its relationship with consumers and banks. Thus, depending on its attributes, a domestic CBDC
could potentially compete with private digital currencies, foreign CBDCs, private payment
platforms, or banks. CBDC proponents differ as to which of these they would like a domestic
CBDC to compete with. CBDCs are more likely to compete with private digital currencies as a
payment means for legal commerce than to function in their other current uses (e.g., as
speculative investments or as payment means for illicit activities).
Depending on its features and how much it differed from the status quo, a U.S. CBDC would
have an ambiguous but potentially significant effect on financial inclusion, financial stability,
cybersecurity, Federal Reserve independence, seigniorage,130 and the effectiveness of monetary
policy. If the CBDC mainly crowded out cash and cryptocurrency use, it could make illicit
activity more difficult, possibly at the expense of some individual privacy. If a CBDC is used to
deliver government payments, its ability to improve their speed and efficiency would depend on
the extent of its adoption by those not already receiving payments by direct deposit, which might
be low unless mandatory.
To date, the Fed and Treasury have not taken a position on whether creating a CBDC would be
desirable. In a 2022 report, the Fed stated that it “does not intend to proceed with issuance of a
CBDC without clear support from the executive branch and from Congress, ideally in the form of
a specific authorizing law.”131 Likewise, a 2022 Treasury report in response to an executive

128 Anneke Kosse and Ilaria Mattei, Gaining Momentum—Results of the 2021 BIS Survey on Central Bank Digital
Currencies, May 2022, https://www.bis.org/publ/bppdf/bispap125.pdf.
129 For more information, see CRS In Focus IF11707, The U.S. Dollar as the World’s Dominant Reserve Currency, by
Rebecca M. Nelson and Martin A. Weiss.
130 An expansive definition of seigniorage is the income the government obtains from having government (including
central bank) liabilities act as money.
131 Federal Reserve, Money and Payments: The U.S. Dollar in the Age of Digital Transformation, January 2022,
https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf.
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order132 did not take a position on whether the United States should pursue a CBDC.133 The report
called for the creation of an interagency working group to work through the various issues raised
in the report. The Fed report argued against a FedAccounts model (where the Fed would offer
retail services directly to consumers) and argued for allowing individuals to use CBDC directly
(as opposed to limiting their use to financial institutions), whereas the Treasury report took no
position on design features. Regardless, Congress might choose to legislate in order to either
explicitly authorize or mandate the Fed to create a CBDC and shape its features and uses or
prevent one from being introduced.
Congress has considered CBDC legislation in the 118th Congress, some of which have seen
legislative action. On September 20, 2023, the House Financial Services Committee ordered H.R.
5403 as amended in the nature of a substitute to be reported. H.R. 5403 would prohibit the Fed
from issuing a CBDC without congressional authorization. Two other bills related to CBDCs
were on the agenda for that markup but not considered. H.R. 3402 would also prohibit the Fed
from issuing a CBDC without congressional authorization. H.R. 3712 would prohibit the Fed
from initiating any pilot programs related to CBDCs.
Policy issues include the following:
• Would a CBDC crowd out private financial services in the areas of
cryptocurrency, payments, or banking?
• Would CBDCs be less costly and more efficient than the current payment
system? What advantages would a CBDC provide now that FedNow is
operational?
• Could international coordination on CBDCs improve the efficiency of cross-
border transactions?
• Would CBDCs promote financial inclusion by offering an attractive alternative to
the unbanked, or would they widen the “digital divide”?
• Would a CBDC enable faster and more efficient government payments?
• How would a CBDC balance privacy and preventing illicit activity?
• What effect would a CBDC have on financial stability?
• Would a CBDC increase or decrease cybersecurity risk?
• Would CBDCs make monetary policy more or less effective?
• Would CBDCs generate more government seigniorage than the current system
can?
• How could the U.S. dollar be affected by other countries’ adoption of CBDCs?
• Would new legislation or regulation be needed to operate a CBDC?
For more information, see CRS In Focus IF11471, Central Bank Digital Currencies, by Marc
Labonte and Rebecca M. Nelson.

132 The White House, “Ensuring Responsible Development of Digital Assets,” Executive Order 14067, March 9, 2022,
https://www.presidency.ucsb.edu/documents/executive-order-14067-ensuring-responsible-development-digital-assets.
In response to the executive order, the White House Office of Science and Technology Policy also produced a report on
technical issues surrounding creation of a CBDC. See White House Office of Science and Technology Policy,
Technical Evaluation For A U.S. Central Bank Digital Currency System, September 2022,
https://www.whitehouse.gov/wp-content/uploads/2022/09/09-2022-Technical-Evaluation-US-CBDC-System.pdf.
133 U.S. Department of the Treasury, The Future of Money and Payments, September 2022, https://home.treasury.gov/
system/files/136/Future-of-Money-and-Payments.pdf.
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Lender of Last Resort
The Fed was originally created primarily to act as a lender of last resort. But over time, the Fed’s
other responsibilities grew out of this role, and the lender of last resort role became secondary. In
normal market conditions, the Fed’s lender of last resort operations are minimal, but they have
been important during periods of financial instability, such as the 2007-2009 financial crisis and
the COVID-19 pandemic.
Despite their name, Federal Reserve banks do not carry out any retail banking activities, with one
limited exception: The Fed traditionally acts as lender of last resort by making short-term loans to
commercial banks through its discount window.134 Banks offer their assets as loan collateral to
protect the Fed from losses. The Fed generally sets the discount rate charged for these loans
above market rates.
Less frequently throughout its history, the Fed has also provided liquidity to firms that were not
banks under emergency authority found in Section 13(3) of the Federal Reserve Act.135 This
authority has been used extensively in only three crises—the Great Depression, the 2007-2009
financial crisis, and the COVID-19 pandemic. In the latter two cases, the Fed used that authority
to create a series of emergency facilities to support nonbank financial markets and firms. The Fed
can finance discount window lending and credit through its emergency facilities by expanding its
balance sheet.
Until the Dodd-Frank Act, this authority was broad, with few limitations. One pre-financial crisis
limitation was that the authority could be used only in “unusual and exigent circumstances.”
Concerns in Congress about some of the Fed’s actions under Section 13(3) during the financial
crisis led to statutory changes in Section 1101 of the Dodd-Frank Act. Generally, the intention of
the provision in the Dodd-Frank Act was to prevent the Fed from rescuing failing firms while
preserving enough of its discretion that it could still create broadly based facilities to address
unpredictable market access problems during a crisis.136 The Dodd-Frank Act also created new
disclosure requirements for 13(3) lending—for details and current legislation to amend those
requirements, see the section below entitled “Fed Independence and Congressional Oversight.”
COVID-19 Response
The COVID-19 pandemic caused widespread disruptions to the economy and, initially, the
financial system. In response to the pandemic, the Fed acted as lender of last resort by
encouraging use of the discount window and creating an alphabet soup of emergency programs
under Section 13(3) to stabilize the financial system and assist entities cut off from credit
markets. Congress took the unprecedented step of providing at least $454 billion and up to $500
billion to the Treasury to support some of these programs through the Coronavirus Aid, Relief,
and Economic Security Act (CARES Act; P.L. 116-136). (As discussed above, the Fed also
supported the economy during the pandemic through monetary policy, reducing interest rates and
expanding its balance sheet.137)

134 The Fed’s lending facility is called the discount window because in the Fed’s early years, a bank that wanted a loan
would take its securities to a window at its Federal Reserve bank to be discounted.
135 12 U.S.C. §343. See CRS Report R44185, Federal Reserve: Emergency Lending, by Marc Labonte.
136 See, for example, the Joint Explanatory Statement of the Committee of the Conference to P.L. 111-203, H.Rept.
111-517, 111th Cong., June 29, 2010.
137 The Fed and other bank regulators also provided regulatory relief to banks during the COVID-19 pandemic to
(continued...)
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The Fed encouraged banks to use the discount window and made the borrowing terms more
attractive when the pandemic began. Discount window use peaked at about $50 billion and then
fell relatively quickly in the spring of 2020, falling below $1 billion outstanding in 2021. Because
foreign banks are reliant on U.S. dollar funding but cannot borrow from the discount window, the
Fed has also allowed foreign central banks to swap their currencies for U.S. dollars so that the
central banks can lend those dollars to banks in their jurisdictions. Swaps outstanding peaked at
nearly $450 billion in May 2020 but have been below $1 billion since 2021.
The Fed created facilities to assist commercial paper (a type of short-term unsecured debt)
markets, corporate bond markets, money market mutual funds, primary dealers, asset-backed
securities, states and municipalities, and a Main Street Lending Program (MSLP) for mid-size
businesses and nonprofits. It also created a facility to make funds available for lenders to make
loans to small businesses through the Paycheck Protection Program (another CARES Act
program).
The Fed charged interest and fees to use these facilities, but the facilities exposed taxpayers to the
risk of losses if borrowers defaulted or securities fell in value. Assistance outstanding under these
facilities peaked at nearly $200 billion in April 2020, then hovered around $100 billion for the
rest of the year, and some assistance still remains outstanding. Treasury pledged $215 billion (of
which $195 billion were CARES Act funds) to backstop potential losses on these facilities.138 In
retrospect, all of the facilities that are wound down made a “profit” (i.e., had positive net income
over their lifetimes) for the taxpayer, and those still holding assets and liabilities are currently
projected to make a profit, except possibly the MSLP.139
As financial conditions improved rapidly—faster than the economy improved—take up for the
programs turned out to be much smaller than their announced size. The emergency programs
backed by the CARES Act expired at the end of 2020, while most other emergency programs
were extended until March 2021. P.L. 116-260 prohibited the Fed from reopening CARES Act
programs for corporate bonds, municipal debt, and the MSLP.
For more information, see CRS Report R46411, The Federal Reserve’s Response to COVID-19:
Policy Issues, by Marc Labonte.
Discount Window Lending to Failed Banks in 2023
Discount window lending during the spring of 2023 suddenly spiked and reached an all-time high
(in nominal dollars) of $295.7 billion on March 15, 2023. These loans were made almost entirely
to the three large banks that failed (see the section above entitled “Silicon Valley Bank (SVB)
Failure.”) Around the time of their failures, discount window lending to SVB peaked at $127

support lending. For more information, see CRS Report R46422, COVID-19 and the Banking Industry: Risks and
Policy Responses, coordinated by David W. Perkins.
138 See CRS Report R46329, Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act (P.L.
116-136), coordinated by Andrew P. Scott.
139 This analysis does not consider whether the programs made an economic profit (i.e., whether the government earned
a market rate of return). The financial performance of the facilities is reported at https://www.federalreserve.gov/
publications/reports-to-congress-in-response-to-covid-19.htm. The Fed states in these reports that it does not expect any
of the facilities to impose losses on the Fed, but does not specify whether the facilities are expected to impose losses on
Treasury for those facilities that are backed by funding from the Treasury. CRS analyzed these reports to conclude that
only the MSLP could potentially result in a net loss when wound down based on each facility’s income and losses to
date, the current market value of outstanding assets, and current outstanding liabilities. The MSLP has realized some
losses related to loan defaults to date and has set aside loan loss reserves for potential future losses. However, income
earned to date has exceeded actual losses and current loss reserves. If the programs ultimately suffered losses, they
would be absorbed by the Treasury’s equity investment in the program using CARES Act funding.
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billion, Signature at $54 billion, and First Republic at $109 billion.140 (First Republic also
borrowed from the Fed’s Bank Term Funding Program, discussed below.) When the banks failed,
outstanding discount window loans were assumed by the bridge banks created by the FDIC to
resolve the failed banks, and the SVB and Signature bridge banks received new discount window
loans (included in the totals cited here). The FDIC, rather than the banks that assumed the failed
banks’ assets, assumed responsibility for repaying the loans.141 It is unclear why the FDIC
borrowed from the Fed’s discount window instead of using its line of credit with the Treasury, but
FDIC Chair Gruenberg testified that the debt limit, which was binding at the time, was not the
reason.142 Collateral and FDIC guarantees meant that the Fed faced no risk of losses on these
loans. However, they may have increased losses to the FDIC if they delayed the banks’ failure
and the banks’ net worth decreased during that time. All remaining loan balances were repaid
(with interest) at the end of November 2023.
Eligibility for primary credit at the discount window is based on being well capitalized under the
prompt corrective action guidelines or being well rated for supervisory purposes.143 The failed
banks were still considered well capitalized at the time of their failures. If a bank is not well
capitalized or well rated, it can borrow under the secondary credit program only at higher interest
rates and under more strict limitations.
Discount window loans can be made quickly if banks have prepared ahead of time, including pre-
pledging collateral. Signature and SVB both struggled to successfully borrow from the discount
window when they experienced liquidity crises because they were not sufficiently prepared.144 In
July 2023, the depository regulators issued updated guidance encouraging depositories to be
prepared to use the discount window when needed.145 Acting OCC Comptroller Michael Hsu
proposed a new regulatory requirement to pledge enough collateral at the discount window to
meet potential deposit outflows.146
Bank Term Funding Program147
In March 2023, the Fed announced the creation of the Bank Term Funding Program (BTFP)—on
the same day the FDIC, Fed, and Treasury announced that all uninsured deposits at SVB and
Signature would be guaranteed. According to the Fed, “this action will bolster the capacity of the
banking system to safeguard deposits and ensure the ongoing provision of money and credit to

140 Questions for the record by FDIC Chair Martin Gruenberg in U.S. Congress, House Committee on Financial
Services, The Federal Regulators’ Response to Recent Bank Failures, 118th Cong., 1st sess., March 29, 2023, p. 189,
https://www.govinfo.gov/content/pkg/CHRG-118hhrg52390/pdf/CHRG-118hhrg52390.pdf; FDIC Office of Inspector
General, Material Loss Review of First Republic Bank, November 28, 2023, p. 24, https://www.fdicoig.gov/sites/
default/files/reports/2023-12/EVAL-24-03.pdf.
141 Federal Reserve, Additional Information on Other Credit Extensions, June 9, 2023, https://www.federalreserve.gov/
monetarypolicy/additional-information-on-other-credit-extensions.htm.
142 Gruenberg, p. 188.
143 12 C.F.R. 201.2.
144 Federal Reserve, Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank, April 2023, p.
59, https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf; FDIC, FDIC’s Supervision of
Signature Bank, April 2023, p. 15, https://www.fdic.gov/news/press-releases/2023/pr23033a.pdf.
145 Federal Reserve, FDIC, National Credit Union Administration, OCC, “Agencies Update Guidance On Liquidity
Risks and Contingency Planning,” joint press release, July 28, 2023, https://www.federalreserve.gov/newsevents/
pressreleases/bcreg20230728a.htm.
146 See OCC, “Acting Comptroller Discusses Bank Liquidity Risk,” press release, January 18, 2024, https://occ.gov/
news-issuances/news-releases/2024/nr-occ-2024-4.html.
147 This section draws from other CRS products coauthored with Lida Weinstock.
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the economy.”148 In the face of significant deposit withdrawals at some banks in the spring of
2023, the program provided an alternative for accessing liquidity to selling off securities—
potentially at a loss—or borrowing from the private sector or the Fed’s discount window.
In some ways, the emergency BTFP functions similarly to the discount window—both are places
banks and other insured depository institutions can pledge collateral in return for cash, thereby
increasing their liquidity. Banks that are undercapitalized cannot borrow from the discount
window’s primary credit program or the BTFP. When the BTFP was created, the Fed adjusted
margin requirements for the discount window so that banks can borrow up to 100% of the
collateral value for these securities from each.
However, there are a few key differences between the BTFP and the Fed’s discount window (see
Table 2). The loans are backed by a narrower set of high-quality collateral, such as U.S.
Treasuries and MBS, than the discount window. The other differences make this facility more
attractive than the discount window. The BTFP provides banks with loans of up to one-year
maturity, whereas discount window loans have terms of up to 90 days. Most importantly, banks
are allowed to pledge those securities at par (face) value instead of market value. This benefits
banks, because many securities they bought when interest rates were lower have fallen in market
value as interest rates have increased, making their borrowing potential higher at the BTFP
compared to the discount window. As of the third quarter of 2023, banks had over $680 billion in
unrealized losses on their securities holdings.149 In that regard, the BTFP may have also helped
banks avoid solvency problems, although solvency problems are avoidable only because, under
the regulatory treatment, unrealized losses do not reduce most banks’ capital. In addition, the
BTFP’s interest rate has been lower in practice than the discount window’s.
Table 2. Comparison of BTFP and Discount Window Terms
Category
BTFP
Discount Window
Eligible col ateral
Only col ateral that is eligible for
Wider range of securities and loans
purchase by the Fed in open market
operations
Col ateral valuation
Par value
Market value
Margin
100%
100% on col ateral eligible for BTFP,
but margins on other types of
eligible col ateral remaina
Term
Up to one year
Up to 90 days
Rateb
One-year overnight index swap rate Rate set by Fed, typically at top of
plus 10 basis points fixed at time of
federal funds rate target range for
advance
primary credit
Source: Federal Reserve, Bank Term Funding Program FAQs, https://www.federalreserve.gov/monetarypolicy/files/
bank-term-funding-program-faqs.pdf.
a. For margins for securities under the discount window, see https://www.frbdiscountwindow.org/Pages/
Col ateral/col ateral_valuation.
b. For current rates, see https://www.frbdiscountwindow.org/.

148 Federal Reserve, “Federal Reserve Board Announces It Will Make Available Additional Funding to Eligible
Depository Institutions to Help Assure Banks Have the Ability to Meet the Needs of All Their Depositors,” press
release, March 12, 2023, https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm.
149 FDIC, Quarterly Banking Profile, November 29, 2023, p. 2, https://www.fdic.gov/analysis/quarterly-banking-
profile/qbp/2023sep/.
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In fact, the rate has at times been lower than the interest rate the Fed pays banks on reserves held
at the Fed because of the movement in market interest rates, potentially creating an arbitrage
opportunity where a bank could borrow from the Fed and deposit the proceeds in its reserve
account, profiting from the spread between the two rates.150 This may help explain why loans
outstanding under the BTFP have continually risen over the program’s existence and stood at
nearly $136 billion at the end of 2023. Unlike the discount window (outside of the loans to the
failed banks), use of the BTFP has not returned to minimal levels since financial conditions have
normalized, and it grew rapidly in December 2023 and January 2024, when the spread between
the two rates widened.151 On January 24, 2024, the Fed placed a new floor on the borrowing rate
to eliminate this arbitrage opportunity.
The BTFP was authorized under Section 13(3) emergency authority—as opposed to the Fed’s
normal bank lending authority used for the discount window.152 As required by statute, the Fed
Board of Governors unanimously found “unusual and exigent circumstances” to justify its
creation, and the program was approved by the Treasury Secretary. Treasury pledged $25 billion
in assets from the Exchange Stabilization Fund to backstop potential future losses that the
program might incur.153 The Fed reported to Congress that it does not expect losses on the
program, because the loans are backed by collateral and the loans are made with recourse (i.e.,
borrowers must repay beyond the collateral value).154 By law, details about loan transactions,
including the identities of participants, will be publicly disclosed one year after the program
closes. The Fed has announced that the facility will expire as scheduled in March 2024.
Policy issues for Congress moving forward include the following:
• Should Congress make further changes to Section 13(3), or did those powers
work as Congress intended during the pandemic and the 2023 bank failures? Are
more restrictions needed to ensure that Section 13(3) programs, such as the
BTFP, do not provide banks with low funding arbitrage opportunities?
• Do the benefits of emergency lending, such as quelling liquidity panics, outweigh
the costs, including moral hazard? Has the Fed created a moral hazard problem
where financial markets expect every recession to bring 13(3) facilities, thereby
leading financial participants to take on greater risks in the expectation of Fed
support? If so, what changes to the Fed’s lending or regulatory powers are
appropriate to mitigate that risk?

150 David Benoit and Eric Wallerstein, “The Fed Launched a Bank Rescue Program Last Year. Now, Banks Are
Gaming It,” Wall Street Journal, January 10, 2024, https://www.wsj.com/finance/banking/the-fed-launched-a-bank-
rescue-program-last-year-now-banks-are-gaming-it-43e9cee3.
151 Alexandra Harris, “Cheap Costs Push Use of Fed Term Funding Tool to Fresh Record,” Bloomberg Government,
January 4, 2024, https://www.bgov.com/next/news/S6RALJDWLU68.
152 This is not the first time the Fed has created an emergency lending facility for banks. The Fed created the Term
Auction Facility (TAF) in December 2007 in response to the financial crisis to auction reserves to banks. The Fed set
the amount of reserves up for auction, with the rate determined at auction. The loans under this program were longer
term than typical discount window or private market loans, although they were shorter than BTFP loans. Auctions
through TAF exceeded loans made through the discount window, peaking at $493 billion. The final TAF auction was
held in March 2010. The Fed did not use Section 13(3) to create TAF but rather used the lending authority used for the
discount window (12 U.S.C. §347b). All loans made under TAF were repaid. For more information, see Federal
Reserve, “Term Auction Facility (TAF),” https://www.federalreserve.gov/regreform/reform-taf.htm.
153 For more information, see CRS In Focus IF11474, Treasury’s Exchange Stabilization Fund and COVID-19, by
Marc Labonte, Baird Webel, and Martin A. Weiss.
154 Federal Reserve, Report to Congress Pursuant to Section 13(3) of the Federal Reserve Act: Bank Term Funding
Program, March 16, 2023, https://www.federalreserve.gov/publications/files/13-3-report-btfp-20230316.pdf.
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• Has operating emergency facilities undermined the Fed’s independence or
political neutrality? Are these programs better suited to Treasury administration?
• Should the Fed be the lender of last resort to banks only or to all parts of the
financial system? In future crises, should facilities that provide longer-term
credit—as opposed to short-term liquidity—to specific financial sectors be
created and administered by the Fed or Treasury? Should the Exchange
Stabilization Fund continue to be used to back Fed facilities in the future, and
should its statutory authority be revised to affirm or prohibit that role?
• Should the Fed make discount window loans to provide short-term financing of
FDIC resolutions, or should the FDIC use its line of credit to the Treasury to
meet its liquidity needs?
• Should changes be made to discount window eligibility, as the large banks
remained well capitalized by regulatory standards and were borrowing from the
discount window shortly before their failures in 2023? Or was discount window
lending to these banks appropriate given the liquidity runs they experienced?
• Are the terms of the BTFP—notably valuing collateral at par instead of market
value—a form of regulatory forbearance that works at odds with prompt
corrective action? Or is it appropriate given that all but the largest banks do not
have to value most securities at market value for regulatory capital purposes? Did
the terms of the BTFP improperly create arbitrage opportunities for banks?
Fed Independence and Congressional Oversight
As discussed in the Introduction, the Fed has been granted an unusually high degree of
independence from Congress and the President.155 Economists view independence as leading to
better monetary policymaking because, subject to less political pressure, the Fed can choose
policies that are optimal under a longer-term horizon. The tradeoff to a more independent Fed is
limits to congressional and executive input into, and oversight of, its actions. Critics of the Fed
have long argued for more oversight, transparency, and disclosure. Criticism intensified following
the extensive assistance the Fed provided to financial firms during the financial crisis. In addition,
some critics downplay the degree of Fed oversight and disclosure that already takes place.
Although oversight and disclosure are often lumped together, they are separate issues. Oversight
entails independent evaluation of the Fed; disclosure is an issue of what internal information the
Fed releases to the public. A potential consequence of greater oversight is that it could undermine
the Fed’s political independence. Most economists contend that the Fed’s political independence
leads to better policy outcomes and makes policy more effective by enhancing the Fed’s
credibility in the eyes of market participants. Disclosure helps Congress and the public better
understand the Fed’s actions. Up to a point, this makes monetary and regulatory policy more
effective, but too much disclosure could make both less effective because they rely on
confidential, market-moving information.156 The challenge for Congress is to strike the right
balance between a desire for the Fed to be responsive to Congress and for the Fed’s decisions to
be immune from short-term political calculations.

155 In terms of relative independence, the Federal Reserve banks are more independent than the Board of Governors in
the sense that they are subject to fewer of the rules that apply to government agencies.
156 Title LVIII, Subtitle F, of the National Defense and Authorization Act for FY2023 (P.L. 117-263) required the Fed
to adopt data standards to publish its publicly available data in an open data format. It does not require the Fed to make
any new data public.
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For oversight, the Fed is required to provide Congress with a written report on monetary policy
semiannually, and both the chair and vice chair for supervision are required to testify before the
committees of jurisdiction semiannually. The Fed also voluntarily produces a semiannual report
on regulation and supervision and a semiannual report on financial stability. Congress
occasionally requires the Fed to produce reports on other miscellaneous topics.157 In addition,
these committees periodically hold more focused hearings on Fed topics. Governors are subject to
presidential nomination and Senate confirmation, as are the leadership positions on the Board.
The Fed’s regional bank presidents, who vote with the governors on monetary policy decisions,
and regional bank directors are not subject to Senate confirmation but are chosen, in part, by the
Board of Governors. In its rulemaking, the Fed follows the standard notice-and-comment process,
which provides some transparency to the Fed’s decisionmaking process and gives the public a
chance to weigh in on regulatory proposals. However, as an independent agency, the Fed’s
rulemaking is not subject to executive review by the Office of Information and Regulatory Affairs
and cost-benefit analysis requirements under Executive Order 12866.158 The Fed has an
ombudsman and an appeals process for its supervisory decisions, such as exam results. The Fed
also has an inspector general that regularly issues public reports stemming from its investigations.
One notable difference between the Fed and most other government agencies is that there is no
congressional oversight of the Fed’s budget—the Fed is self-financing and its budget is not
subject to the appropriations or authorization process. Thus, there is no regular avenue for
Congress to ensure that the Fed is devoting resources to congressional priorities or to use
congressional control over resources as leverage to achieve its goals.
Critics have sought a Government Accountability Office (GAO) audit of the Fed. The Fed’s
financial statements are already required to be annually audited by private sector auditors.159
Contrary to popular belief, GAO has periodically conducted Fed audits since 1978, subject to
statutory restrictions, and a GAO audit would not, under current law, release any confidential
information identifying institutions that have borrowed from the Fed or the details of other
transactions. The Dodd-Frank Act (P.L. 111-203) resulted in an audit of the Fed’s emergency
activities during the financial crisis and an audit of Fed governance. GAO can currently audit Fed
activities for waste, fraud, and abuse. Effectively, the remaining statutory restrictions prevent
GAO from evaluating the economic merits of Fed monetary policy decisions. In the past, the Fed
has opposed proposals to remove statutory restrictions on GAO audits and require a general GAO
audit on the grounds that they would reduce the Fed’s independence from Congress.
For disclosure, the Fed is statutorily required to release an annual report of its operations and
actions and a weekly summary of its balance sheet.160 The Fed is required to report to Congress
within seven days about any use of its emergency lending powers, with monthly updates as long
as lending is outstanding. In December 2010, the Dodd-Frank Act required the Fed to release
individual lending records for emergency facilities created during the financial crisis, revealing
borrowers’ identities and loans’ terms for the first time. Going forward, individual records for
discount window and open market operation transactions have been released with a two-year lag.

157 Other Fed reports to Congress can be accessed at http://www.federalreserve.gov/publications/other-reports/
default.htm.
158 For more information, see CRS Report R41974, Cost-Benefit and Other Analysis Requirements in the Rulemaking
Process, coordinated by Maeve P. Carey.
159 Section 11B of the Federal Reserve Act (12 U.S.C. §248b). Since 2012, the Fed has voluntarily released unaudited
financial statements quarterly as well. Those statements can be found at http://www.federalreserve.gov/monetarypolicy/
bst_fedfinancials.htm#quarterly.
160 §§10(7), 10(10), and 11(a)(1) of the Federal Reserve Act (12 U.S.C. §247, 12 U.S.C. §247a, and 12 U.S.C. §248(a),
respectively).
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The CARES Act also included testimony and reporting requirements for Fed actions during the
pandemic involving CARES Act funding.161
Until 1993, the Fed did not publicly announce its monetary policy decisions (e.g., interest rate
changes). The Fed has released minutes from its monetary policy deliberations (FOMC meetings)
since 1993, currently with a three-week lag, and transcripts of those deliberations with a five-year
lag since 1995.162 In 2009, the Fed began releasing the economic and monetary policy projections
of Fed officials. In 2011, the chairman began holding quarterly press conferences following
FOMC announcements. The Fed also releases information on its rulemaking, policies, and
enforcement actions on its website. The board is subject to the Freedom of Information Act
(FOIA), although it sometimes invokes exemptions provided in that act to deny or limit FOIA
requests.163 (Critics have called for making the Federal Reserve banks subject to FOIA as well.164)
Some studies found the Fed to rank as one of the more transparent central banks in the world.165
The SVB failure led Congress to focus on congressional oversight and transparency of Fed
supervision.166 The Senate Banking Committee reported S. 2190 on June 22, 2023, which, among
other things, would require the Fed to produce a semiannual report on regulation and supervision
with similar contents to the existing regulation report plus information on its internal operations
and culture for supervision. Whenever a bank with over $10 billion in assets under the Fed’s
jurisdiction fails, the bill would also require an inspector general review of whether Fed
supervisory practices played a role in the failure of the bank.167
The House Financial Services Committee ordered H.R. 3556 to be reported in the nature of a
substitute on May 24, 2023, which, among other things, would:
• accelerate the public disclosure of open market operations and discount window
lending records from two years to one year;
• expand the scope of information that Congress could request from the Fed about
its 13(3) emergency facilities, provide access to nonpublic emergency lending
records (including personal information) to the committees of jurisdiction upon
request, and remove restrictions on GAO providing transaction records from Fed

161 For more information, see CRS Report R46329, Treasury and Federal Reserve Financial Assistance in Title IV of
the CARES Act (P.L. 116-136), coordinated by Andrew P. Scott.
162 From 1970 to 1993, the Fed released other information on FOMC meetings. See David Lindsey, A Modern History
of FOMC Communication, June 2003, http://fraser.stlouisfed.org/docs/publications/books/
20030624_lindsey_modhistfomc.pdf.
163 The nine FOIA exemptions and their relevance to the Fed are detailed at http://www.federalreserve.gov/generalinfo/
foia/exemptions.cfm. For background on FOIA, see CRS Report R41933, The Freedom of Information Act (FOIA):
Background, Legislation, and Policy Issues, by Wendy Ginsberg.
164 In December 2023, the Federal Reserve banks adopted a uniform policy on records disclosure. The policy is
available at https://www.newyorkfed.org/medialibrary/media/newsevents/statements/2023/transparency-accountability-
policy.
165 N. Nergiz Dincer and Barry Eichengreen, “Central Bank Transparency and Independence,” International Journal of
Central Banking, March 2014. This study finds an increase in Fed transparency between 1998 and 2010. Christopher
Crowe and Ellen Meade, “Central Bank Independence and Transparency,” European Journal of Political Economy,
vol. 24, no. 4 (December 2008), p. 763. This study finds a slight decline in Fed transparency between 1998 and 2006. It
appears that the authors rate the Fed as less transparent in 2006 than in 1998 because the Fed discontinued its release of
money growth targets between those dates.
166 See the section above entitled “Silicon Valley Bank (SVB) Failure.”
167 Currently under Title 12, Section 1831o(k), of the U.S. Code, any time a bank failure causes a material loss to the
FDIC, the inspector general must review the bank regulator’s supervision to ascertain the reason for the failure.
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Federal Reserve: Policy Issues in the 118th Congress

lending facilities, including information on the identities of borrowers, to
Congress; and
• require the vice chair for supervision to submit a semiannual report to Congress
along with testimony that provides data on supervisory ratings, material
supervisory determinations, and informal and formal enforcement actions, along
with a confidential report identifying banks with poor supervisory ratings and
active informal and formal enforcement actions.
Policy issues for Congress going forward include the following:
• What is the right balance between Fed independence and oversight and
accountability?
• Have existing statutory restrictions interfered with GAO’s ability to evaluate the
Fed on issues of congressional interest?
• Has disclosure of lending records since the financial crisis created any stigma
that has reduced the effectiveness of Fed lending programs? Has it buttressed
public confidence that Fed lending programs do not result in favoritism or
conflicts of interest? Would greater congressional access to private lending
records improve oversight or risk undermining a bank’s financial condition
through improper public release?
• Should more federal statutes applying to the board and other government
agencies (such as FOIA) be applied to Federal Reserve banks, or should they
continue to be exempted? Do these exemptions effectively place the banks
beyond the reach of congressional oversight?
• Should Congress be kept better informed about banks’ supervisory problems, or
would this risk undermining a bank’s financial condition through improper public
release? Does Congress have sufficient aggregate information about bank
supervision to support its oversight role?
• Does the 2021 trading scandal involving Federal Reserve bank presidents
indicate that more congressional oversight is needed?168 Does the Fed’s 2022
rules banning trading by leadership obviate the need for legislation?169
For more information, see CRS Report R42079, Federal Reserve: Oversight and Disclosure
Issues, by Marc Labonte.
Diversity
Some Members of Congress believe that the Fed and the banking sector suffer from a lack of
diversity and believe that the Fed could do more to eliminate racial disparities. The Dodd-Frank
Act (P.L. 111-203) created Offices of Minority and Women Inclusion (OMWI) for the Federal

168 For background, see Brian Cheung, “A Timeline of the Federal Reserve’s Trading Scandal,” Yahoo!news, January
10, 2022, https://news.yahoo.com/a-timeline-of-the-federal-reserves-trading-scandal-104415556.html.
169 In the 117th Congress, Senate Banking Chair Sherrod Brown introduced S. 3076 to prohibit financial trading by Fed
leadership. In February 2022, the FOMC adopted a new policy prohibiting trading by leadership. See FOMC,
Investment and Trading Policy for FOMC Officials, February 17, 2022, https://www.federalreserve.gov/
monetarypolicy/files/FOMC_InvestmentPolicy.pdf. The policy was extended to additional employees in 2024. See
FOMC, “Federal Open Market Committee Announces Updates That Further Enhance Its Policy on Investment and
Trading,” press release, January 31, 2024, https://www.federalreserve.gov/newsevents/pressreleases/
monetary20240131c.htm.
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Reserve System and other federal financial regulators, and those offices are required to produce
annual reports to Congress.
In the 117th Congress, the House passed the Federal Reserve Racial and Economic Equity Act
(H.R. 2543), a wide-ranging bill that included several provisions involving the Fed:
• Title I would have assigned the Fed a duty to eliminate racial and economic
disparities in carrying out its monetary policy and other responsibilities and
would have required the Fed to report to Congress semiannually on racial and
ethnic disparities.
• Title II would have required banks with over 100 employees regulated by the Fed
(and other federal financial regulators) to submit data to the OMWI.
• Title III would have required the Fed and Treasury Secretary to issue guidance on
the regulatory capital treatment of Emergency Capital Investment Program
investments for Subchapter S and mutual banks. Title III would have also
required the Fed to make the discount window available to minority depository
institutions (MDIs) and community development financial institutions (CDFIs) at
the seasonal credit rate.
• Title IV would have required the Fed, OCC, FDIC, National Credit Union
Administration, and CFPB to conduct a study and submit a strategic plan to
Congress to promote the chartering of de novo (i.e., new) banks, including MDIs
and CDFIs. Title IV would have also required the Fed (and other federal banking
regulators) to include a diversity and inclusion component to their supervisory
ratings of banks, create an “impact bank” designation for banks with less than
$10 billion in total assets and loans to low-income borrowers equal to or greater
than 50% of assets, create a Minority Depositories Advisory Committee to advise
the agency, and produce a report on the diversity of its bank examiners.
• Title VI would have required Fed regional banks to interview at least one
individual reflective of gender diversity and at least one individual reflective of
racial or ethnic diversity when hiring a regional bank president.
Policy issues for Congress moving forward include the following:
• Should monetary policy be used to promote the goal of racial equity, or are
interest rates a tool that is not capable of effectively addressing racial equity?
• Is Fed leadership sufficiently diverse? Should Congress require greater diversity
or explicitly prohibit discrimination in the selection of all leadership positions at
the Fed?
• Can the bank supervisory process be used to improve diversity at banks, or would
such a policy detract from the current goals of supervision?

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Author Information

Marc Labonte

Specialist in Macroeconomic Policy

Acknowledgments
This report draws on previously published material, including with coauthors Lida Weinstock, Paul Tierno,
Rebecca Nelson, and Andrew Scott.

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

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