Changes on the Horizon

There have already been a number of articles and several continuing legal education webinars discussing the November 2024 election results and the change in leadership of various agencies. In most cases, the articles also discuss what impact the leadership change might have on regulations — all with the idea that everything will be better for banks and other highly regulated industries. One thing they all agree on with some certainty is that there will be regulatory change.

Changes will come in many forms including use of the Congressional Review Act related to recent final rules, agencies freezing or withdrawing current proposed rules, and removing proposed topics from rulemaking agendas. Most of the agencies have already indicated they will freeze existing rulemaking activity and not issue further final rules until the new leadership has a chance to weigh in. However, a few (CFPB and FTC among others) have ignored the custom and have issued final rules or new interpretations or guidance. In addition, ongoing litigation related to existing final rules will continue, and as new final rules or guidance are issued by the new agency leadership, expect new litigation from a different group of plaintiffs. Given there is too much pending or recently finalized activity to cover here, this article focuses on a few areas where new regulation will likely impose more burden on banks rather than less.

First, many anticipate that merger activity will increase over the next several years. Banks will want to closely watch issuances from the FDIC, FRB, OCC, and DOJ related to mergers and merger review. The FDIC, OCC, and DOJ, along with the FTC, had issuances in 2023 and 2024 that provided new guidelines for the first time since 1995 — all with the intent to make some, if not all, mergers more difficult to get approved. The FRB did not participate in those announced changes. Given the FRB approves bank holding company mergers, this creates unnecessary uncertainty. While most commentators have indicated they believe the new issuances will be rolled back, they do not know whether the issuances will be rolled back to the 1995 guidelines, and it is likely they will not. In the end, the FRB and the banking agencies will need to resolve the current differences and issue a uniform set of merger policy statements along with any necessary regulation changes, and work with the DOJ to reach agreement that the bank agency merger statements and regulations provide adequate policy.

Second, the agencies have spent the years since the Dodd Frank Act (the Act) became law requesting comment on rulemakings required by Section 956 of the Act related to incentive-based compensation. None have ever been finalized. The most recent proposal would have applied to those with $1 billion or more in average total consolidated assets. All banks should continue to focus on their incentive-based compensation practices under all existing regulatory issuances and rules, and at the same time, prepare for change. That preparation should include looking at the most recent proposed rule and comparing the bank’s current incentive-based compensation structures to the recent proposal. Given the multiple iterations of proposed rules, multiple comment periods, and comments received by the agencies related to the topic, the most recent proposed rule may well be close to the next proposed and ultimately finalized rule. Banks of all sizes should pay attention regardless of the coverage suggested by the final rule, as we know rules often become best practices for those below the arbitrary asset thresholds.

Third, corporate governance is another area where the agencies have made multiple attempts to gather comments and propose new board and other requirements. Some have been individual agency actions. All the agencies, however, continue to focus on corporate governance, including during examinations. Governance practices is also an area that gets blamed in part for some of the recent large and small bank failures. In some of the 2023 and 2024 smaller bank failures, fraudulent activity by the CEO or others was blamed as the main reason for the failure. In hindsight, changes to audit procedures or corporate governance were needed for better oversight and prevention of the fraudulent activity. In the larger bank failures, much has been written by OIGs and others, but in the end, following better governance practices, including better board and senior management structures, reporting, and other governance practices, have been cited as ways to prevent the various missteps. As a result, the agencies will likely still push for additional corporate governance standards.

Fourth, cryptocurrency. I don’t think anyone can say for sure how the bank regulations will change related to cryptocurrency activity, but most agree that there will likely be some loosening of the existing agency viewpoints on it. Many of the named successors for the SEC, Treasury Department, and other positions are more pro-cryptocurrency than those previously in the positions. I expect there will be regulation that brings some certainty to what and how banks can participate in and/or support cryptocurrency activities, including holding it for others.

In the end, we know change is coming, but we don’t know exactly what it will be. We do know that from 2016 to 2020, there wasn’t an attitude of throw-all-the-rules-out as some had predicted, so that is also unlikely for the next four years. That said, there likely will be ongoing regulation more favorable to banks, although in the four areas cited above, any new regulation will very likely still require more rather than less from banks.