Fed outlines bank reforms; Sompo closes Aspen deal

Federal Reserve Vice Chair for Supervision Michelle Bowman told lawmakers the U.S. banking system 'remains sound and resilient', citing strong capital ratios, significant liquidity buffers, continued loan growth, declining non‑performing loans in most categories and solid profitability. Her testimony emphasized that supervision and regulation must support a safe and sound system while fostering economic growth and safeguarding financial stability.

Bowman noted that non‑bank financial institutions are gaining share in lending and payments without facing equivalent prudential standards, intensifying competition for regulated banks. She said the Fed is encouraging responsible innovation by rescinding several policies that were intended to hinder innovation and by working on a framework for stablecoin issuers, including capital and liquidity requirements mandated by the GENIUS Act.

The Fed also plans to clarify the permissibility and regulatory treatment of banks’ digital‑asset activities, including offering feedback on new use cases. Bowman framed this as part of a broader effort to ensure supervisors can identify and manage risks arising from innovation without constraining banks’ ability to compete.

Bowman argued that community banks should not be subject to standards designed for the largest, most complex institutions. She backed congressional efforts to raise 'static and outdated' asset thresholds that have drawn smaller banks into regimes intended for much larger peers, and she supported updating Bank Secrecy Act reporting thresholds that have not changed in decades.

The Fed is considering changes to the community bank leverage ratio to give smaller lenders more flexibility in their capital framework while preserving safety and soundness. It has also released new capital options for mutual banks and is exploring streamlined merger, acquisition and de novo chartering processes for community banks, alongside an updated merger analysis that better reflects competition among small institutions.

Bowman said the ongoing Economic Growth and Regulatory Paperwork Reduction Act review is expected to produce 'substantive change' by eliminating outdated or overly burdensome rules. She contrasted this with prior reviews and called for regular reassessment to keep regulation responsive to evolving banking conditions.

For large banks, Bowman described a modernization of all four pillars of the capital framework: stress testing, the supplementary leverage ratio (SLR), Basel III and the global systemically important bank (G‑SIB) surcharge. The Fed has proposed increased transparency around stress test models, scenario design and the specific 2026 scenarios, with the goal of reducing volatility in capital requirements and ensuring significant model changes receive public input.

Banking agencies have finalized changes to the enhanced SLR for U.S. G‑SIBs so leverage requirements function mainly as a backstop to risk‑based capital. Bowman warned that when the leverage ratio is the binding constraint, it can discourage low‑risk activities such as holding Treasuries because it applies the same capital charge to safe and risky assets.

On Basel III, Bowman said U.S. regulators are working to finalize rules to reduce uncertainty and provide clarity on capital requirements, including revisiting mortgage risk weights and mortgage servicing assets to support market liquidity and affordable homeownership. She added that the Fed is refining the G‑SIB surcharge so the combined framework balances safety and soundness with banks’ ability to support the broader economy.

Bowman highlighted steps to make supervision more transparent, accountable and risk‑focused. The Fed has issued guidance to examiners emphasizing tailoring oversight to each bank’s size and risk profile and is reviewing its use of Matters Requiring Attention to ensure they focus on threats to safety and soundness with clear expectations.

She said the CAMELS ratings framework, largely unchanged since 1979, is under review to establish clearer metrics and reduce subjectivity, especially in the management component. The Large Financial Institution ratings system has already been revised to better align ratings with overall firm condition, addressing past situations where banks were deemed not 'well managed' despite strong capital and liquidity.

In response to concerns about supervisory overreach, the Fed has ended the use of 'reputational risk' as an examination component and proposed a regulation barring Fed personnel from pressuring banks to 'debank' customers based on constitutionally protected political or religious views. The central bank is also publishing internal supervisory manuals for the largest banks and conducting an independent review of its response to 2023 bank failures.

In insurance, Sompo Holdings’ unit Sompo International has closed its $3.5 billion acquisition of Aspen Insurance Holdings, buying 100% of Aspen’s Class A ordinary shares and taking the company private. Aspen will cease trading on the New York Stock Exchange and become a wholly owned subsidiary of Endurance Specialty Insurance, itself a Sompo unit, and will transition to the Sompo brand.

Sompo Group CEO Mikio Okumura called the deal an important milestone in plans for profitable growth, capital deployment and a globally diversified property and casualty platform. Sompo P&C CEO James Shea said Aspen’s reinsurance and insurance portfolios and expanded U.K. presence will help accelerate commitments to customers, staff and shareholders.

Mark Cloutier, Aspen’s former executive chairman and CEO, will serve in an advisory role, while Sarah Stanford, Aspen UK CEO since March 2024, has been appointed CEO of Sompo UK, leading all U.K. P&C operations subject to regulatory approval. Financial advisers on the transaction included Morgan Stanley (MS) for Sompo and Goldman Sachs (GS) for Aspen.

Elsewhere in financial services, Banco Santander (SANe) executives said the pending $12.3 billion acquisition of Webster Financial is central to a plan to lift U.S. return on tangible equity to 18% by 2028, from 10% in 2025. The combined bank is expected to have about $327 billion in assets and generate roughly $800 million in cost savings, with closing targeted for the third quarter, subject to regulatory and shareholder approvals.

In technology and healthcare, Control Bionics announced an exclusive U.S. joint venture with NextLevel Assistive Technology to manufacture and distribute capital‑light, iOS‑based speech‑generating devices, targeting initial annual volumes of 1,000–1,500 units in a U.S. market the company estimates at 55,000–65,000 devices a year. The structure is designed to provide a fixed per‑device contribution margin while NextLevel funds tooling and manufacturing.

Other companies reported sector‑specific developments, from KBRA’s report on mixed credit quality trends in over $1 trillion of private middle‑market lending to Carriage Services’ 2025 earnings and 2026 guidance and Gran Tierra Energy’s timing for its 2025 results release. Across these updates, firms highlighted cost discipline, capital allocation and targeted growth initiatives in the U.S. and abroad.