Bank Regulatory Considerations in a Second Trump Administration – What Could Change, What Could Stay the Same

While the coming weeks and months will provide more clarity, we already can anticipate some indications of what is in store for bank regulation, supervision, and enforcement in a second Trump Administration. To help navigate the path forward, we offer some reflections—not predictions—about the anticipated personnel and policy changes in the federal banking agencies. This alert is geared toward banks and fintechs, tech companies that work with them, potential investors, and new entrants to the financial services market.

Key Takeaways

1. More permissive bank activities and deals. The politicization of the federal banking agencies likely means another pendulum swing—this time, back to around 2018. The agencies weren't always subject to overt political influences, but many now are. The Federal Reserve remains more insulated but will likely harmonize policy with the others, especially on interagency regulations and guidance.
2. More "gray area" for banks and others to operate in. Without Chevron deference, the agencies' more ambitious plans may face more scrutiny and challenges, which would delay rulemakings and implementation. Alternatively, longer comment periods may provide the opportunity for more collaborative rulemakings and avoid the risk of enforcement actions predicated on informal guidance.
3. But not everything will change. The 2023 bank failures have left their mark on the federal banking agencies, and no political party or agency wants to deal with bank runs or face scrutiny for lax or ineffective supervision. We also note that the second Trump Administration may prove to be relatively more populist than the first. This change may allow for some crossover on policy issues, including fees and privacy.

Federal Banking Agency Personnel Changes

The federal banking agencies each have different considerations based on their founding statutes:

• OCC. President-elect Trump is expected to appoint a new comptroller of the currency to replace acting comptroller Michael Hsu. The Biden-Harris Administration kept Hsu as an unconfirmed, acting comptroller—unique in practice, but apparently permissible under the National Bank Act. With a Republican-controlled Senate, however, we anticipate that the next comptroller will be properly confirmed. That may not seem significant, but there is an argument that having a confirmed comptroller could help the OCC return to realizing its own institutional views. There is a perception that an acting comptroller is either a placeholder or on probation. While that arrangement may help maintain political control or oversight from the White House or Senate, the OCC is an important federal agency and should be fully functioning.
• FDIC. Due to serious allegations and findings, the FDIC has been the subject of scandal and introspection. The current FDIC chair, Marty Gruenberg, announced (under a Democratic administration) that he will resign once his replacement is confirmed. Under a Republican administration he could be removed, if he doesn't simply resign. The (acting) comptroller of the currency also sits on the FDIC board, along with the CFPB director. Both will be replaced with Republican appointees. The Democrats will be able to appoint a minority of FDIC directors. While a replacement for the FDIC chair has not been announced, the current vice chair, Travis Hill, is a Republican and appears poised to take the helm. He has notably dissented on many of the later Biden-Harris Administration regulatory proposals.
• Federal Reserve. The current vice chair for supervision, Michael Barr, is more politically insulated. However, his handling of the recent Basel III endgame proposed rule appears to have tempered much of his portfolio, and we would not be surprised if he resigned under a second Trump Administration. It is possible that President-elect Trump will eventually tap Michelle Bowman, a current governor of the Federal Reserve Board, who has supported regulatory relief and clarity as well as the chartering of more community banks.

  Jerome Powell's term as chair expires in 2026, and he has indicated that he intends to remain in his position until that time. President-elect Trump has also indicated that he will not renew Powell as chair.

(De-)Regulation

We anticipate that the second Trump Administration will essentially return to policies marked by deregulation. Where it does rely on regulations, they will likely clarify activities that are permissive based on new findings, return to previous rulemakings, or codify the agencies' existing views based on supervision and guidance. Post-Chevron, we believe there is an opportunity for more collaboration between the agencies, industry, and others to reach credible and effective solutions. While this approach would involve more lengthy and data-based notice and comment periods, they could avoid protracted legal battles and provide more clarity to industry and others.

Here's what we think deregulation practically means for key areas and policies:

• Comprehensive, systematic review. To start, the agencies—particularly the FDIC and the OCC (as well as the CFPB, covered in a separate alert)—will likely conduct a systematic review of the many proposed rules and other agency actions under the Biden-Harris Administration, including the regulatory supercycle that followed the 2023 bank failures. But we don't think every initiative will be abandoned:

It is hard to say whether the proposed rule to bail-in more banks (i.e., long-term debt requirements) will comprehensively change. It wasn't the subject of a fierce industry challenge, and many of the larger banks that would be covered have taken steps to issue qualifying debt in anticipation of a final rule. Whether the final interagency rule revising the implementation of the Community Reinvestment Act (CRA) may once again be reviewed and reissued is also unclear. That would be an extensive undertaking, but other approaches and modernization proposals were previously explored under the first Trump Administration—notably, the OCC's final CRA rule under former comptroller of the currency Otting, which was rescinded.

• More activities, more deals. We anticipate that the agencies will identify or allow a wider range of permissible activities. Digital assets and related activities will likely once again become more permissible, especially those currently precluded by guidance that was never promulgated in a rulemaking. For instance, the OCC's Interpretive Letter #1179 nominally preserved the permissibility of certain digital asset activities but subjected them to a pre-clearance process that the Federal Reserve and the FDIC then adopted. In addition, the Biden-Harris Administration's efforts to de-bank the crypto industry is likely to be rolled back, though safety and soundness and financial crimes considerations will remain important factors.

  Artificial intelligence also seems poised to follow a more permissive policy, especially where it can lead to innovation, U.S. job creation, and U.S. competitive advantage, and reduce compliance burdens for banks of many sizes. These concepts were explored in Executive Order 13859 (2019) and a January 2020 memorandum from the Office of Management and Budget—one of the previous Trump Administration's last acts.

• More deals and investments. More de novo charters and possibly different charters (e.g., ILCs) are expected. Absent congressional action—which is unlikely—we do not anticipate a comprehensive program of financial modernization. We anticipate that banks, noting an apparent trend of pendulum swings, will frontload deals and investments before the window to do so closes again in a future Democratic administration (at least, barring a Democratic policy change).

  Other transactions could likely include banks making equity investments in fintechs, and fintechs and others making controlling or non-controlling investments in banks, bank holding companies, and non-bank affiliates.

  Consolidation among existing banks due to high compliance costs and new market entrants with different models will also have a better shot under a second Trump Administration than under the Biden-Harris Administration.

• Tailoring. There is a statutory basis for tailoring regulation and supervision to banks with total assets of $250 billion or more under the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018. But the 2023 bank failures highlighted various risks at banks with fewer assets. Harmonization of the various lower bounds is nevertheless possible—they currently range from $10 billion to $100 billion in total assets, with some thresholds at $50 billion along the way.
• Previous Trump Administration executive orders (EO). We also note that several prior executive orders may be revived and revised as part of a deregulatory push, including:
  • EO 13771 (reducing regulation and controlling regulatory costs)
  • EO 13777 (regulatory reform agenda)
  • EO 13859 (artificial intelligence)
  • EO 13891 (agency guidance documents)
  • EO 13892 (transparency and fairness in administrative enforcement proceedings and adjudications)
  • EO 13893 (improved accountability for administrative actions; PAYGO)
  • EO 13980 (protection from over-criminalization through regulatory reform)
  • EO 12630 (on regulatory takings)

  These EOs could be revived relatively quickly. We anticipate that they may be revised in part and strengthened as needed to align with the Supreme Court's Loper Bright and Jarkesy decisions and to insulate them from legal challenges. We expect new agency heads to impose principles drawn from these EOs on agency processes and decisions. And industry will likely draw from the EOs in any challenges to administrative actions.

• Banks, tech, and commerce. It is unclear whether a second Trump Administration will fundamentally rethink the separation of banking and commerce still enshrined in the remnants of the Glass-Steagall Act—and whether it could do so in the absence of congressional action and Chevron deference. As a result, while big tech and others may, for instance, seek to expand more into the financial services sector by owning ILCs or investing in banks or bank holding companies, they may face significant challenges or constraints.

Supervision

The uptick in supervisory scrutiny that followed the 2023 bank failures is not likely to subside. The 2023 bank failures remain significant events that caused a great deal of public deliberation by the federal banking agencies, Congress, inspectors general, and the private sector, with gaps in supervision identified. A new administration or political party is not expected to change the lessons learned from this experience. Supervision also provides a confidential way for banks and supervised entities to resolve issues in the absence of public enforcement actions.

While supervision will remain heightened, it may prove to be more risk-based, focusing on safety and soundness, strong balance sheets, and core and material third-party risks, rather than the kitchen-sink exercises that have typified recent examinations and enforcement actions.

Because the second Trump Administration may prove to be more populist than previous Republican administrations, there may be certain crossover policies like some continuation of the war on fees and a renewed focus on financial privacy.

Enforcement

A more populist approach could lead to relatively more enforcement actions compared to the first Trump Administration. But we think the enforcement posture of the second Trump Administration would be mild compared to what banks, service providers, and others have faced under the Biden-Harris Administration. For instance, the federal banking agencies may be less likely to expansively and creatively use the prohibition on unfair or deceptive acts or practices.

Where the agencies do rely on public enforcement actions, we anticipate that first there would be a clarification of the rules of the road under regulation and guidance and a full-throated supervisory effort to remediate any issues.

Financial crimes including anti-money laundering issues are, nevertheless, likely to remain key enforcement priorities.

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If you have questions about the potential impact of a second Trump Administration on your business activities, plans, or pending matters before a federal banking agency, please contact the authors or your DWT attorney contact.