Our Take: financial services regulatory update – April 11, 2025
Change remains a constant in financial services regulation. Read "our take" on the latest developments and what they mean.
Current topics – April 11, 2025
- 1. Regulators speak: Bessent, Bowman and Hill
- 2. OMB issues AI guidance for agencies as Barr speaks on bank adoption
- 3. Appendix
- 4. On our radar
1. Regulators speak: Bessent, Bowman and Hill
- What happened? This week featured commentary from three senior regulatory officials:
- On April 8th, FDIC Acting Chairman Travis Hill provided updates and plans for FDIC policy priorities.
- On April 9th, Treasury Secretary Scott Bessent spoke on financial regulation.
- On April 10th, Fed Governor Michelle Bowman testified before the Senate Banking Committee (SBC) in her confirmation hearing to be the Fed Vice Chair for Supervision (VCS).
- What did the regulators say? The officials’ remarks covered a number of similar topics, including:
- Regulatory tailoring. Both Bowman and Bessent’s comments reflected the Administration’s principles for financial regulation including a foundation in statutory mandates, fairness, consistency and efficiency in terms of the costs and benefits of rules. Hill said the FDIC is conducting a comprehensive review of its use of numerical thresholds, including consideration of inflation indexing and macroeconomic growth-based adjustments.
- Supervision. Bessent announced that Treasury intends to direct improvements to examination procedures, monitoring of examiners and supervisory appeals processes. He raised the possibility of defining “unsafe and unsound” with objective measures rooted in financial risk rather than what he described as excessive focus on management and governance. Hill said the FDIC continues to evaluate adjustments to its supervisory framework, including enhancements to the CAMELS rating system and examiner training.
- Capital and liquidity. Bessent signaled a departure from the Basel III endgame standards, saying that the U.S. should “selectively borrow” from them and otherwise determine its own regulatory framework. Both Bessent and Hill announced that the bank regulators are working on a proposal to ensure that the supplementary leverage ratio (SLR) functions as a backstop. Bessent also noted plans to assess the current liquidity framework, including the role of the discount window and Federal Home Loan Banks and opportunities to expand which types of loans a bank can pledge as eligible collateral.
- Resolution planning. In line with prior remarks regarding the 2023 bank failures, Hill said the FDIC is shifting away from bridge-bank-first assumptions and will place greater emphasis on rapid whole-bank sales. He said upcoming FAQs will clarify expectations for last year’s expanded insured depository institution (IDI) resolution planning requirements with a focus on practical capabilities to facilitate quick marketing and execution.
- Innovation. Hill said the FDIC is prioritizing new bank formation reforms including more flexible capital expectations for noncomplex community bank charters and a reexamination of the treatment of innovative business models. He also said the FDIC would issue a request for information on industrial loan companies (ILCs) to revisit rulemaking in this area. Hill also said the FDIC intends to provide guidance on specific digital asset use cases such as custody, stablecoin issuance and participation in public blockchains. It is also examining potential updates to deposit insurance regulations for stablecoin reserves and enhancing resolution planning for tokenized assets, specifically to ensure that blockchain-based deposit arrangements can be halted post-failure.
- What’s next? Bowman’s nomination will be considered by the SBC and then the full Senate. President Trump has not yet nominated a permanent FDIC Chairman – Hill will remain in his role until a replacement is confirmed.
Our Take
Deregulation and re-focused supervision are moving full steam ahead. This week’s remarks demonstrate that acting and incoming regulators are aligned on their goals, including rationalizing core regulatory requirements, focusing supervision on financial risk factors and promoting innovative growth in the market. However, as illuminated by the regulators’ comments, there are implications to consider across each of these goals.
- Rulemaking will go from a sprint to hurdles. With the Administration focused on removing existing requirements and setting up a gauntlet of statutory basis and cost/benefit analysis for any new rulemaking, any revised regulations will not come quickly – if they come at all. New regulations will likely focus on advancing innovation and de novo bank formation and a lengthier, more balanced approach will allow impacted institutions to provide greater input on the effects of disintermediation and differing requirements for similar activities.
- Long-awaited capital relief is nigh. Based on Bessent’s and Hill’s confirmation that the agencies are working on rulemaking to reform the SLR, it appears that banks may finally receive their perennial call for the exemption of Treasury securities and central bank reserve deposits. As this change was temporarily implemented to ease capital constraints on banks’ Treasury market intermediation during the pandemic, current market volatility provides a timely backdrop to make the change permanent.
- International accords under pressure. Bessent’s comments on the U.S. diverging from the Basel III endgame standards reflect the Administration’s skepticism around the necessity of following international agreements. He sent a new signal that the regulators will not just remove the gold plating (or additional requirements) from the original Basel III endgame proposal, they may exclude aspects of the global standards altogether. Differing standards across jurisdictions are not a new phenomenon but the implications for international supervisory cooperation and for globally active U.S. banks will need to be considered.
- Focusing bank ratings on financial risk will spark debate. The regulators’ remarks around reducing focus on non-financial factors and taking a fresh look at the bank ratings framework could have the most rapid and significant impact of all the plans under consideration. No formal rulemaking is required to effect these changes, rather each agency can move forward by updating exam scheduling and staffing, as well as examiner handbooks and training. The reforms are targeted at fundamentally curtailing supervisory discretion in favor of objective financial metrics, but such changes are sure to spark a debate on the importance of maintaining strong management and governance standards – as well as the potential impact to consumers and other market participants.
What’s the bottom line? In light of the volume and scope of potential reforms ahead, banks should ensure that their regulatory change management processes are positioned to effectively monitor regulatory developments, assess their impact on the organization and provide thorough feedback to the agencies.
2. OMB issues AI guidance for agencies as Barr speaks on bank adoption
- What happened? On April 3rd, Office of Management and Budget (OMB) Director Russell Vought issued a memo outlining guidance for complying with a January executive order (EO) to promote responsible AI innovation across the federal government. On April 4th, Fed Governor Michael Barr gave a speech on generative AI, explaining that it is rapidly becoming a competitive necessity in banking while warning that its risks must be actively managed.
- What does the memo require? The memo directs federal agencies including the financial regulators to accelerate responsible AI adoption by appointing Chief AI Officers, establishing AI governance structures, and developing AI strategies and generative AI policies. Agencies must implement minimum risk management practices for high-impact AI use cases, update internal policies on IT, data, cybersecurity, and privacy, and publish annual AI use case inventories. The memo also requires agencies to convene AI governance boards and publicly release AI strategies.
- What did Barr say? He outlined the transformative potential of AI when used in areas like credit underwriting, customer service, data processing and risk management. Acknowledging challenges around explainability, consistency, privacy and information security, Barr reminded banks of existing guidance that should apply to use of AI, specifically expectations around model risk management and third-party risk management (TPRM) – particularly due to the potential of fintech partnerships as an accelerant for bank AI adoption.
- What’s next? The memo outlines several deadlines between June 2nd, 2025 and August 3rd, 2026 for its requirements. For a table of deadlines and requirements, see the Appendix.
Our Take
From theory to practice. Barr’s speech shifts the discussion of AI from the conceptual to concrete examples of how banks deploy it and manage related risks. His acknowledgment that it is becoming a "competitive necessity" in banking suggests regulators recognize they cannot and should not restrict adoption. Financial institutions that may have hesitated to adopt AI due to concerns about risk management and regulatory permissibility can effectively see these remarks as a green light and proceed with due care. Firms should ensure that internal risk assessments and third-party contracts thoroughly address the risks of any new uses of AI, including those related to potential data leaks or bias. Rather than creating an entirely new framework, firms should incorporate AI governance and oversight into their existing TPRM, technology risk management and model risk management frameworks. Senior management and board members must understand why and how their institutions are using AI, as well as the data, assumptions, training methods, decisions and validation processes behind these strategies.
Federal AI adoption will shape supervisory expectations. Although the OMB memo applies to the federal government, expanded AI exploration and adoption by their regulators will affect financial institutions. As federal regulators adopt it for internal supervision, examination, and fraud detection, firms should anticipate AI-enabled compliance and supervision becoming the norm. Banks and insurers will likely have heightened expectations for real-time risk monitoring, model explainability, and documentation of AI-driven decisions. In addition, as agencies will be required to release AI use case inventories and policies, firms will gain insight into how regulators themselves are deploying the technology. This will give financial institutions a chance to align their internal risk and compliance frameworks with those being utilized by their supervisors.
What’s the bottom line? For financial institutions, greater government adoption of AI presents both an opportunity to lead with aligned practices and a need to prepare for a future where AI is central to regulation, supervision, and market infrastructure. While awaiting further specific guidance, financial institutions should heed Barr’s message that existing risk management frameworks already apply.
3. Appendix
4. On our radar
These notable developments hit our radar recently:
House passes multiple CRA resolutions. On April 9th, the House of Representatives passed two Congressional Review Act (CRA) resolutions to overturn rules finalized by the CFPB at the end of the Biden Administration. The resolutions to overturn the final rule capping the amount consumers could be charged for overdraft fees, and the final rule requiring “larger participants” in the digital wallet sector to allow CFPB examiners to review whether they are complying with the ETF Act and other consumer financial protection laws have now passed the House and the Senate. Both resolutions will now be sent to President Trump who is expected to sign the repeal into law.
Treasury eliminates 15 rules and guidance materials. On April 9th, the Treasury Department, including the IRS and the Financial Crimes Enforcement Network (FinCEN) announced the immediate elimination of 15 rules and guidance materials. The announcement did not provide any detail as to which 15 rules and guidance would be eliminated, only that “the rules range from now-obsolete regulations dating back many years to regulations and guidance issued during the last Administration that placed significant burden on America’s small businesses.” The announcement added that Treasury will continue to identify actions that will provide relief from “burdensome and unnecessary IRS rules and unleash the regulated banking sector” through a review of regulations and examination of practices.
New SEC Chairman confirmed. On April 9th, the Senate voted to confirm Paul Atkins as the next Chairman of the SEC. Atkins previously served as a commissioner of the SEC under President Bush.
Trump directs agency leads to quietly repeal regulations. On April 9th, President Trump issued a Presidential Memorandum instructing agency heads to move forward with repealing existing regulations that are inconsistent with his priorities without providing any advance notice or going through the traditional public input process. Agency leads have previously been instructed via an executive order to identify certain categories of “unlawful” and “potentially unlawful” regulations and begin plans to repeal them. The new memo directs agencies to prioritize their review using the decisions of ten recent Supreme Court rulings as guidance to determine if a regulation falls into one of the categories. Additionally, the memo invokes an exception laid out in the Administrative Procedure Act (APA) which allows agencies to dispense with notice-and-comment rulemaking when that process would be “impracticable, unnecessary, or contrary” to the public interest.
CRA resolution introduced for Bank Merger Act final rule. On April 10th, Representative Andy Barr (R-KY) introduced a joint resolution of disapproval under the Congressional Review Act (CRA) to nullify a final rule issued by the OCC related to the review of bank merger applications under the Bank Merger Act (BMA). Senator John Kennedy (R-LA) introduced companion legislation in the Senate in February 2025. The resolution will now be put forward for a vote in both chambers, and if passed it will be sent to President Trump for signature.
CFPB offers regulatory relief from registration requirements for small loan providers. On April 11th, the CFPB announced it will not prioritize enforcement or supervision actions with regard to entities that do not satisfy future deadlines to submit meet registration requirements under 12 CFR Part 1092 (this rule generally applies to nonbank providers of consumer financial services). The CFPB also indicated that it is considering issuing a notice of proposed rulemaking to rescind the regulation or narrow its scope.
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