Welcome to the third issue of Monthly Deposits: MoFo’s Bank Regulatory Newsletter, which provides an overview of recent developments in U.S. bank regulation, including proposed rules, reforms, and other significant updates. Here we cover some of the key developments from the past month that our team is keeping an eye on.
On May 14, 2026, Federal Reserve Board (FRB) Vice Chair for Supervision Michelle Bowman delivered opening remarks at the Federal Reserve Bank of Kansas City 2026 Future of Banking Conference. In her remarks, she highlighted the renewed regulatory and supervisory approach of the FRB and the other federal banking agencies, including the implementation of tailored regulatory requirements and supervisory expectations focused on material financial risks. In particular, Vice Chair Bowman emphasized that the FRB is working to right-size the current “one-size-fits-all” regulatory and supervisory approaches in order to better account for the unique needs and business models of community banks and smaller financial institutions. Drawing on her background as a community banker, she emphasized the importance of relationship-based lending and appropriately tailored regulation for the size, complexity, and risk profile of community banks.
On the regulatory front, Vice Chair Bowman noted that the current expected credit loss accounting framework represents a disproportionate cost and compliance burden without meaningful benefit for community banks and also highlighted Regulation O’s disproportionate burdens for financial institutions in smaller communities. Regarding supervision, she clarified that the FRB is implementing a new approach to establish clearer standards for issuing Matters Requiring Attention (MRAs) and Matters Requiring Immediate Attention (MRIAs). In particular, Vice Chair Bowman emphasized a supervisory focus on deficiencies that could materially impact a bank’s financial condition, rather than procedural or documentation shortcomings that are unlikely to pose a threat to safety and soundness. While noting that threats to critical operations, including cybersecurity and operational resilience, will remain core supervisory priorities, she emphasized that the FRB will work to distinguish between genuine material risks and mere procedural deviations.
On May 14, 2026, the Federal Deposit Insurance Corporation (FDIC) released a staff study on deposit flows at three banks that failed in the spring of 2023. The staff study analyzed depositor behavior and outflows using transaction-level data, including data from the banks’ core deposit and wire systems, from the period before the three banks were closed and placed into FDIC receivership. The staff study found that the banks “experienced deposit outflows that were unprecedented in their size and speed,” and that those depositors with uninsured deposits (i.e., deposits over the $250,000 FDIC deposit insurance limit) were far likelier to withdraw their deposits compared to retail depositors, whose deposits were fully insured. The staff study found that uninsured balances constituted a significant portion of the three banks’ deposits, representing between 74% and 94% of their balances.
Further, the staff study found that the largest among the three banks’ uninsured depositors represented the greatest flight risk, which resulted in such depositors “withdrawing all or nearly all their deposits across their accounts.” Highlighting the impact of these large depositors, the staff study found that the majority of the banks’ deposits were held by its largest depositors, which created notable deposit concentrations and increased risk.
Reforms to deposit insurance limits remain a focal point on Capitol Hill. Notably, in the FDIC’s press release regarding the staff study, FDIC Chairman Travis Hill reiterated his belief that “regulators need to develop a more sophisticated understanding of deposit behavior.” The staff study is likely to help shape the conversation on potential revisions to deposit insurance limits and to stimulate discussions on how to avoid future bank failures.
On May 19, 2026, the Federal Financial Institutions Examination Council (FFIEC) announced an invitation for public comment on proposed revisions to the Uniform Financial Institutions Rating System, commonly referred to as the CAMELS rating system. The CAMELS rating system is used by the federal banking agencies to evaluate the safety and soundness of financial institutions and identify those financial institutions that require heightened supervisory attention. Under the current system, supervisory officials rate six components of covered financial institutions: capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk. Supervisors then assign each institution a composite rating based on these components.
The proposed revisions represent the first comprehensive revisions to the CAMELS framework in 30 years. According to the FFIEC, the proposed revisions would improve the rating’s measure of safety and soundness by focusing component and composite ratings on material risks affecting an institution’s financial condition and risk profile. Key aspects of the FFIEC’s proposed revisions include (i) removing the special consideration status of the management component of the rating and narrowing its scope to only include core risk-management issues; (ii) clarifying composite rating thresholds (strong, satisfactory, deficient, and critically deficient); (iii) removing reputational risk from consideration; and (iv) heightening the standard for downgrading an institution to deficient on its management component. Comments are due by August 17, 2026.
On May 20, 2026, the House Committee on Financial Services Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence held a hearing entitled “Partnering for Innovation: How Bank-Fintech Collaborations Enhance Financial Infrastructure.” At the hearing, MoFo Financial Services Partner Alexandra Steinberg Barrage delivered testimony on how bank-fintech partnerships have changed over the past five years and how new partnerships are modernizing the U.S. financial infrastructure.
In her written statement before the subcommittee, Ms. Steinberg Barrage highlighted how “bank-fintech collaborations are driving U.S. innovation,” including banks partnering with digital asset custodians and stablecoin issuers and integrating tokenized deposits and artificial intelligence applications through partnerships with fintechs. Subcommittee Chairman Bryan Steil (R-WI), echoing these sentiments, characterized bank-fintech partnerships as “a win-win,” as fintech “firms gain a partner that can help them scale their business in a compliant way, while banks gain access to new technologies.” The Subcommittee also discussed H.R. 6552, the “Bank-Fintech Partnership Enhancement Act,” which would instruct the federal banking agencies to “study what changes to federal banking laws and rules may help to promote effective partnerships” between fintechs and traditional banking institutions.
On May 26, 2026, the FRB published a notice and request for comment (RFC) on proposed revisions to the Federal Reserve Policy on Payment System Risk to accommodate special-purpose accounts that would clear and settle certain payment activity by fintech and nonbank entities over Fed payment rails. In a press release, the FRB noted that in the evolving payments landscape, “financial institutions with an increasingly wide range of business models have sought direct access to the Federal Reserve’s payment services” in order to move money without the services of an intermediary bank partner.
According to the FRB’s accompanying Board staff memo, the proposed “payment accounts” (so-called “skinny” master accounts) would “support innovation” by accommodating the clearing and settlement needs and “novel and diverse business models” of interested financial institutions, many of which are not federally insured, while mitigating material risks to Reserve Banks and the broader payments system. Under the proposal, a payment account holder (i) would not have access to intraday credit or the discount window; (ii) would not earn interest on balances held at a Reserve Bank; (iii) would only have access to payment services with automated controls to prevent overdrafts (i.e., no access to FedACH); and (iv) would be prohibited from acting as a correspondent bank. Payment accounts would be distinct from Reserve Bank master accounts, which do not contain similar restrictions.
While the proposal would not expand eligibility for Reserve Bank master accounts, meaning that applicants would still need a qualifying charter or other statutory basis to apply for the payment accounts, it represents an important step in providing clarity for fintechs with novel banking charters that have historically faced long wait times in the review of their applications. Comments on the RFC are due by July 27, 2026. For more information on this topic, please see our recent client alert concerning the RFC.