A New Regulatory Era
With Republican control of the White House and Congress, deregulation is set to be a key priority. The administration hopes to ease compliance burdens to encourage economic growth and financial expansion. Potential changes include:
- Dodd-Frank Act Revisions: The easing of capital and stress testing requirements may provide banks with greater flexibility in their financial strategies. Thus, banks should reassess their capital planning models and consider reallocating capital toward strategic growth or share buybacks.
- Consumer Financial Protection Bureau (CFPB) Reforms: Potential reductions in enforcement, or even closure of the CFPB, could shift consumer protection responsibilities elsewhere. This may lead to deprioritization of enforcement action and transfers of regulatory authority back to regulators like the OCC, FDIC, and the Federal Reserve. Banks should review complaint data and internal controls around consumer compliance—even without federal pressure, reputational risk remains high, and some state attorneys general may step in.
- ESG & Climate-Related Financial Disclosures: Over the past few years, we watched an uptick in potential reporting requirements around environmental, social, and governance issues. Under the new administration, these issues will not be prioritized, and we do not anticipate new reporting requirements will be implemented at the federal level. Importantly, states may still focus on ESG, so all state-level requirements must also be monitored to ensure compliance. For example, California’s SB 253 and 261 are still in effect and may create a compliance patchwork for banks. Be sure to map out current and expected ESG reporting across your footprint and ensure teams are tracking both SEC and state-specific obligations.
- Bank Mergers & Acquisitions: Regulatory barriers to M&A activity could be reduced, facilitating industry consolidation. Banks seeking growth should reassess potential targets and revisit paused or delayed M&A strategies, particularly where past deals hit regulatory hurdles.
Tax Policy Adjustments
Tax legislation is squarely in the spotlight. The financial services industry stands to gain—or lose—depending on how quickly Congress acts.
- Extension of TCJA Provisions: Various Tax Cuts and Jobs Act provisions, both those that will automatically expire and those that will not, are key tax policy priorities for the new administration, and are a hot topic on the hill as Republicans consider tax legislation via reconciliation. Bank directors would be well-advised to monitor potential changes to existing tax deductions, credits and rates. Be sure to model your bank’s tax position assuming current law sunset vs. extension scenarios to quantify exposure.
- Corporate Tax Rate Reduction: A possible decrease from the current 21% to an even lower range of 15-20%. Consider the timing of income recognition, deferred tax assets/liabilities, and implications for effective tax rate management.
- Capital Gains Tax Revisions: Potential reductions or adjustments tied to inflation. It may become important to update client-facing advisory strategies and revisit proprietary investment structures or bank-owned investment portfolios.
- Tariff & Trade Policy Changes: Effects on supply chains and inflationary pressures that banks must consider in risk assessments. Tariffs risks should be incorporated into credit underwriting and sector-specific stress testing.
- Digital Assets & Cryptocurrency Support: A more favorable regulatory framework for digital financial products may drive a clearer framework from the CFTC and SEC. Bank directors should assess internal capabilities and risk appetite for digital asset services and may want to consider partnerships with FinTechs or investment in blockchain infrastructure.
Interest Rates & Monetary Policy
While the Federal Reserve remains independent, monetary policies will come under pressure and continue to shape the economic landscape. With a focus on key economic indicators such as inflation and employment rates, bank directors must stay informed about potential shifts in interest rate policies and their impact on lending strategies. Keep an eye out for a slower pace of rate cuts than originally expected and the compressed nature of the yield curve, impacting net interest margins. ALM simulations under multiple rate curve scenarios should be run, while revisiting loan pricing strategies, deposit betas, and hedging programs.
Opportunities & Risks for Financial Institutions
Deregulation presents both opportunities and risks. On the positive side, reduced compliance costs could lead to higher profitability. FinTech firms may also benefit from relaxed oversight, fostering innovation and market entry. However, increased competition and state-level regulatory hurdles could pose challenges. Additionally, the potential for future regulatory rebounds may require institutions to maintain adaptability and strong risk management practices.
Preparing for the Future
As regulatory shifts take shape, bank directors must remain proactive. Key steps include:
- Staying Informed: Regularly monitoring legislative and regulatory developments. It may be wise to appoint a senior compliance or strategy officer to monitor federal and state developments weekly.
- Assessing Risk Exposure: Evaluating the potential impacts of deregulation and tax policy changes. Align investment and tech strategy with the post-regulatory reform environment.
- Strategic Planning: Adjusting business models to capitalize on new opportunities while mitigating risks. Build financial models around varying tax, rate, and regulatory outcomes to inform budgets.
- Engaging with Policymakers: Advocating for policies that support sustainable financial growth. Proactively communicate with industry groups, policymakers, and regulators to shape outcomes.
The shift in Washington opens the door for a new era of regulatory and tax policy—but also introduces uncertainty and the potential for divergent state and federal expectations. Financial institutions that stay agile, informed, and engaged will be best positioned to thrive in 2025 and beyond.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
