By: Cyn Hutchinson
As Donald Trump prepares for his second term in office following his re-election, his administration’s vision for the banking industry is coming into sharper focus. The 2025 plan signals a significant shift in federal banking oversight, with a strong emphasis on deregulation, mergers, and a recalibration of supervisory priorities. For banks, fintechs, and the broader financial services sector, these changes may present new opportunities—and new risks.
Let’s delve into the anticipated policy shifts, personnel changes at key federal agencies, and the potential impact of the Trump administration’s proposals. While much remains to be clarified, early signals indicate that a second Trump term could fundamentally reshape the regulatory landscape.
Return of Deregulation: Echoes of 2018
Trump’s first term was marked by sweeping deregulation in the financial services sector, aimed at rolling back the Dodd-Frank Act and reducing compliance burdens on banks. The second term appears poised to take a similar trajectory, prioritizing permissive regulatory environments, streamlined mergers, and expanded bank activities.
Key proposals include:
Expanding Permissible Activities: Banks may be allowed to engage in more digital asset activities, including cryptocurrency services, reversing the Biden administration’s restrictive stance. Artificial intelligence applications in banking could also see relaxed oversight to encourage innovation.
Facilitating Mergers: Trump’s administration aims to accelerate merger approvals, especially for community and regional banks facing high compliance costs. The administration sees consolidation as a pathway to stronger institutions better equipped to handle market disruptions.
Tailored Regulation: The administration plans to tailor regulations based on asset size and risk profile. This approach aims to reduce burdens for mid-sized banks while maintaining stricter oversight for global systemically important banks (GSIBs).
Agency Overhauls: New Faces, New Policies
The federal banking agencies are bracing for significant personnel changes under Trump’s leadership. These appointments will set the tone for policy direction and enforcement priorities.
Office of the Comptroller of the Currency (OCC):
A confirmed comptroller is expected to replace acting Comptroller Michael Hsu, marking a departure from the Biden administration’s approach. The OCC is likely to return to a deregulatory stance, focusing on enabling broader bank activities.
Federal Deposit Insurance Corporation (FDIC):
Current FDIC Chair Marty Gruenberg is expected to step down, paving the way for a Republican-led board. Travis Hill, the current vice chair, is a likely contender for the top position. His track record suggests a more business-friendly approach to regulatory proposals, particularly regarding corporate governance and resolution planning.
Federal Reserve:
While Chair Jerome Powell’s term extends to 2026, Trump has indicated he will not reappoint him. Potential successors, like current Fed Governor Michelle Bowman, are likely to advocate for regulatory relief and a more balanced approach to supervision.
Regulatory Compliance: A Shift in Focus
Despite Trump’s emphasis on deregulation, not all aspects of compliance will face the chopping block. Lessons from the 2023 bank run-offs and bank failures remain fresh, ensuring that certain safeguards stay in place. Key areas of focus include:
Capital Requirements: The administration may reevaluate the Basel III endgame capital proposed rule, potentially withdrawing from the Basel III Accord altogether. However, the need for strong capital reserves to prevent bank runs will likely keep this issue in the spotlight.
Anti-Money Laundering (AML): Financial crimes enforcement is expected to remain a priority. Banks must maintain robust AML programs to mitigate risks, even in a deregulated environment.
Consumer Privacy: A populist undercurrent in Trump’s approach may lead to greater scrutiny of data privacy practices, aligning with bipartisan concerns about consumer protection.
Opportunities for Banks and Fintechs
Trump’s policies may open doors for innovation and investment in the financial services sector:
De Novo Charters: The administration is expected to encourage new bank charters, providing opportunities for fintechs and other non-bank entities to enter the market.
Cross-Sector Investments: Banks may gain more flexibility to invest in fintechs and vice versa, fostering collaboration and innovation.
AI and Digital Assets: A permissive stance on AI and cryptocurrency could drive technological advancements and create competitive advantages for U.S. financial institutions on the global stage.
Supervision and Enforcement: A Softer Touch?
While Trump’s administration is expected to reduce the volume of enforcement actions compared to the Biden years, the focus will shift toward preventive supervision:
Risk-Based Supervision: Examinations may prioritize material risks like capital adequacy and third-party relationships, rather than conducting exhaustive “kitchen-sink” reviews.
Transparency in Enforcement: Agencies may provide clearer rules and longer comment periods before pursuing enforcement actions, reducing uncertainty for regulated entities.
However, high-profile enforcement priorities like AML violations are unlikely to wane, given their critical importance to global financial stability.
Challenges and Criticisms
While deregulation may foster innovation and reduce compliance costs, critics warn of potential risks:
Systemic Stability: Looser regulations could lead to vulnerabilities in the financial system, echoing the conditions that preceded the 2008 crisis.
Consumer Protection: A deregulatory agenda may dilute safeguards designed to protect consumers, particularly in areas like lending practices and data privacy.
Regulatory Whiplash: The cyclical nature of regulation—tightening under Democrats and loosening under Republicans: creates uncertainty for businesses trying to plan for the long term.
Looking Ahead: A Balancing Act
Trump’s 2025 plan presents a mixed bag for the banking industry. While deregulation and permissive policies offer opportunities for growth and innovation, the potential for increased risks and regulatory instability cannot be ignored.
For banks, fintechs, and other stakeholders, the key to navigating this new landscape lies in maintaining robust compliance frameworks and staying agile in the face of shifting priorities. By aligning their strategies with the evolving regulatory environment, businesses can capitalize on opportunities while safeguarding against potential pitfalls.
In the coming months, as Trump’s administration appoints new agency heads and rolls out its policies, clarity will emerge. Until then, the financial services sector must prepare for a dynamic and potentially transformative era of banking regulation.
Are you ready?!