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Regulatory Fatigue
Banks are suffering a bad case of regulatory fatigue. At least, that’s what you’d think from the results of Bank Director’s 2025 Bank M&A Survey. When asked about the top three challenges to profitability, 40% of respondents cited regulatory compliance costs.
The survey was taken by bank CEOs, senior executives and directors in September. Earlier this year, banks reported tougher regulatory exams as well. More than half of respondents to Bank Director’s 2024 Risk Survey who had an exam since the spring 2023 bank failures felt the heavy weight of increased scrutiny, especially on liquidity planning and interest rate sensitivity. At Bank Director’s Bank Audit & Risk Conference in June, James Bergin, a partner at Arnold & Porter, said those failures caused regulators to get on the ball quicker. “The supervisors are more willing to develop conviction faster,” he said. “What was an observation at one point might [now] be an [enforcement action].”
Not surprisingly, the bigger the bank, the bigger the burden. Sixty-four percent of respondents at banks above $10 billion in assets cited regulatory compliance expense as a top threat to profitability in the 2025 Bank M&A Survey, compared to 19% of respondents at banks from $250 million to $500 million in assets.
That’s because small banks enjoy carve-outs from many regulatory demands, given the important role they play in their economies and their lack of resources to compete with bigger banks. Banks under $10 billion in assets are exempt from a cap on debit interchange fees, for example. And the recently finalized Community Reinvestment Act rule allows banks below $600 million in assets to opt out of a new lending test.
President-elect Donald Trump hasn’t nominated anyone to head crucial banking regulatory agencies, which will influence future rulemaking. If his last term is any indication, they will have a deregulatory mindset. In Congressional testimony this week, the soon-to-be outgoing Acting Comptroller of the Currency Michael Hsu seemed intent on justifying his legacy. In a written statement, he said he “prioritized strong risk management and encouraged bankers and supervisors to be vigilant.” After Hsu started his job in 2021, interest rates rose dramatically, and crypto assets lost $2 trillion in value. Despite this, “OCC-supervised banks stood strong.”
• Naomi Snyder, editor in chief for Bank Director
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