Monthly Deposits – Issue #1

Welcome to the inaugural 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.

Agencies Clarify Capital Treatment of Tokenized Securities

On March 5, 2026, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (collectively, the “Agencies”) jointly issued frequently asked questions (FAQs) to clarify the capital treatment of tokenized securities, i.e., securities where ownership rights are represented by using distributed ledger technology. Under applicable law, tokenized securities that confer legal rights identical to those of their non-tokenized form are “eligible tokenized securities.”

In their answers to the FAQs, the Agencies clarify that the capital rules are “technology neutral” and that eligible tokenized securities should be treated in the same manner as the non-tokenized form of the security under the bank capital rules.

The FAQs also clarify that the capital treatment of tokenized securities is the same whether those securities are issued on permissioned or permissionless blockchains. The Agencies remind covered banking organizations to apply sound risk-management practices and comply with applicable regulations.

FDIC Chairman Outlines Regulatory Reforms

In a speech at the American Bankers Association Washington Summit on March 11, 2026, Chairman Travis Hill announced that the FDIC is planning to make a range of reforms to the agency’s regulatory approach, including improving its consumer compliance program and reorienting its supervisory functions to focus on “noncompliance with laws and regulations, and actual harm to consumers, as opposed to policies and procedures, training, and other process-related considerations.” Chairman Hill also indicated that the FDIC will revise certain aspects of its compliance exams, with an enhanced focus on products that are material to a bank’s business and limited use of examiners’ visitations outside of a bank’s specified exam cycle.

In addition, Chairman Hill previewed a pending BSA/AML proposal, designed to allow banks to direct resources to the highest risk areas, and expressed optimism that AI and other technological innovations “can elevate real risk signals and reduce false positives” to improve BSA/AML functions and efficiency. Chairman Hill also indicated that the FDIC will propose that payment stablecoins subject to the GENIUS Act are not eligible for pass-through deposit insurance. He noted that as part of the same proposal, but apart from the GENIUS Act, the FDIC plans to provide clarification and seek comment on the applicability of deposit insurance rules to tokenized deposits.

Agencies Issue Proposed Rules to Update Bank Capital Requirements

On March 19, 2026, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (collectively, the “Agencies”) issued three proposed rules to update their approach to bank capital requirements in an effort to modernize the regulatory capital framework adopted after the global financial crisis. The proposed rules, which will implement the final phase of Basel III or, the so-called Basel III Endgame, in the United States, are intended to streamline the capital framework by eliminating overlapping requirements, right-sizing calibrations to match actual risk, and addressing long-standing gaps in the prudential framework. The Agencies said they expect the proposals to result in a modest decrease in the overall amount of capital in the banking system, but that capital levels would remain substantially higher than before the global financial crisis.

The proposals are a significant change of course from the regulatory Endgame proposals considered under the prior administration and should provide meaningful relief to banks of all sizes. Additionally, the proposals may result in a material increase in the mortgage servicing and origination activities of covered banks, a business line that covered banks have largely ceded to nonbank mortgage entities in recent years.

Interest Grows in Deposit Insurance Updates

On March 25, 2026, members of the House Financial Services Committee introduced bills to reform federal deposit insurance. Also on March 25, 2026, members of the Senate Banking Committee introduced the bipartisan Main Street Depositor Protection Act, which would instruct the FDIC to set a new cap of between $250,000 and $5,000,000 in additional coverage for noninterest-bearing accounts. A similar House bill is being developed. A separate bill introduced by Rep. Marlin Stutzman (R-Ind.) would direct the FDIC to study whether deposit insurance coverage should be raised for certain accounts. Additionally, Rep. Andy Barr (R-Ky.) introduced a bill to establish an emergency transaction account guarantee program. In a statement on the House bill introductions, House Financial Services Committee Chairman French Hill (R-Ark.) said the bills will be examined in a “data-driven manner” meant to “ensure the stability of the banking system, maintain depositor confidence, fairly apportion costs, enforce market discipline, and reduce moral hazard.”

Since the sudden resolution of Silicon Valley Bank in 2023, when the FDIC exercised the systemic risk exception to protect uninsured depositors, Congressional interest in updating deposit insurance surged then dissipated. Meanwhile, the deposit insurance limit has not been adjusted since 2010. Banks of different sizes are split on whether higher limits would be beneficial, as an increase in the deposit insurance limit could result in higher FDIC assessments, especially for large entities. 

Fed Grants Exemption for Foreign Bank Subsidiary

On March 26, 2026, the FRB and the OCC released joint findings on Morgan Stanley Bank’s request for an exemption from the limitations of Section 23A of the Federal Reserve Act (“Section 23A”), to allow for the corporate reorganization of its foreign subsidiary, Morgan Stanley Europe SE, which would bring the foreign investment unit under the national bank. Section 23A and its implementing Regulation W limit the value of transactions between banks and their foreign affiliates, unless the FRB and the OCC jointly release findings that an exemption would be in the public interest, would be consistent with Section 23A, and would remain uncontested by the FDIC. FRB Governors Philip Jefferson, Michael Barr, and Lisa Cook voted against the decision based on concerns about U.S. exposure to risky foreign nonbank activity and their hesitancy in setting a precedent to allow for other large U.S. banks to receive an exemption. In a statement supporting the exemption, FRB Vice Chair for Supervision Michelle Bowman stated that the FRB has yet to object to competitors of Morgan Stanley already engaged in similar activities with foreign subsidiaries, and that the decision to grant an exemption would not create a binding precedent.