A lighter approach to financial regulation under Donald Trump is fast becoming evident with the Federal Deposit Insurance Corporation, one of several regulators that evaluates US bank deals, dropping a number of Biden-era policies.
We take a look at what has been withdrawn and what they would have meant for the banking industry.
1. Merger policy
In September 2024 the FDIC issued new guidelines to increase scrutiny on bank mergers, but those have now been removed under Trump. The rules would have meant that any bank merger that created an institution with over $50bn in assets would have been subject to public hearings and greater inspection on how the merger would have impacted local communities. For any merger creating a bank with over $100bn in assets, the scrutiny would have been even greater.
Instead, the regulator is now temporarily reinstating the less rigorous merger policy that was in effect prior to 2024, which focuses primarily on deposit concentrations to assess the competitive impact of a merger.
The American Bankers Association welcomed the move. Its chief executive Rob Nichols said: “We applaud the decision to rescind the 2024 merger policy statement, which created more uncertainty in the marketplace for banks looking to make strategic decisions about their future.”
2. Brokered deposits
In July last year the FDIC proposed enhanced disclosure requirements for banks with regard to their use of brokered deposits — funds obtained through third-party intermediaries. These are considered more rate-sensitive and less stable than retail deposits, posing potential risks to a bank’s liquidity profile.
The rules were thought onerous but — in light of the 2023 banking turmoil — were intended to ensure banks correctly state the levels of brokered deposits in their financial statements.
The rule “would have significantly disrupted many aspects of the deposit landscape”, the FDIC said this week when explaining the withdrawal of the proposal.
3. Guidelines for governance and risk management
The corporate governance proposal, put forward in October 2023, included standards for corporate governance, risk management practices and board oversight.
Among other things, the rules would have required banks to have the majority of board members as independent directors, in order to establish three lines of defence when it comes to risk management.
The framework would have compelled risk managers to identify, document and notify the chief executive officer and the board’s audit and risk committees of any violations of law or regulation.
The FDIC said this week that the proposal would have created a number of “overly prescriptive and process-oriented expectations”.
4. New limits on incentive-based compensation for bank executives
In May 2024 the FDIC put forward rules to implement Section 956 of the Dodd Frank Act, which intended to ensure banks’ compensation programmes did not provide incentives for short-term risk taking.
The proposal, among other things, required that all incentive-based compensation arrangements of senior executive officers at banks with $50bn or more in total assets contained deferral, forfeiture, downward adjustment and clawback provisions.
At the time, the American Bankers Association was highly critical of the proposal.
5. Change in Bank Control Act
And finally, last July, the FDIC proposed to amend the Change in Bank Control Act, which regulates changes in the ownership of banks. The change sought to address the FDIC’s concerns about the increasing stakes in banks by large asset managers.
At the time the Bank Policy Institute said the proposal would have created “unnecessary complexity in how the government reviews investments in banks”.
