The financial services industry stands at a pivotal moment as it anticipates potential shifts in federal policy. With the Trump administration preparing to take office, industry stakeholders are analyzing how various policy changes could reshape banking, regulation and market dynamics across the United States.
7 potential areas of impact for financial services
This analysis examines the key areas that could significantly impact financial institutions, offering insights into both opportunities and challenges that may emerge in the evolving landscape.
1. Regulatory environment and deregulation
A significant shift in regulatory approach is expected, with the administration likely to move swiftly to rescind informal agency guidance and reduce regulatory burdens. The transformation will likely begin with dismantling informal guidance, while formal regulations established through notice-and-comment processes will require more time to modify.
Key regulatory bodies, including the CFPB, OCC and FDIC, are expected to see leadership changes that could significantly influence supervisory priorities and enforcement strategies. This transition period may create opportunities for institutions to negotiate more favorable resolutions to ongoing regulatory matters, though past conduct will remain subject to enforcement due to existing staff recommendations and statutes of limitations.
2. Banking activities and M&A
The administration’s pro-business stance is expected to create a more permissive environment for bank mergers and acquisitions. Stronger focus on reducing inflation and lowering interest rates could improve bank earnings and valuations through increased net interest margins. The regulatory environment may become more favorable for consolidation, particularly among regional banks, while oversight of larger transactions may see reduced scrutiny compared to previous years. This could lead to increased consolidation activity, especially among mid-sized institutions seeking economies of scale and technological advantages through strategic combinations.
3. Innovation and technology
The Trump administration is expected to adopt a tech-forward stance, promoting innovation across financial services. This approach could manifest through more favorable treatment of cryptocurrency and digital asset activities, support for artificial intelligence applications in financial services, and expanded opportunities for fintech partnerships and charters. The administration may revive initiatives to expand the use of nonbank charters or grant direct access to federal agency services, such as Federal Reserve master accounts. Financial institutions should prepare for an environment that encourages technological advancement while maintaining appropriate risk management frameworks.
4. Capital requirements and Basel III
The approach to capital requirements could see significant changes, particularly regarding the Basel III endgame proposal. The administration may reconsider increased capital requirements for large banks while maintaining sufficient safety and soundness standards. This balancing act will be crucial for maintaining system stability while promoting growth and competitiveness. Banks should closely monitor potential changes to capital requirements and stress testing frameworks, as these could significantly impact their operational and strategic planning.
5. Consumer protection and enforcement
While existing consumer protection frameworks will remain, enforcement priorities and approaches may shift significantly. The administration is expected to take a more measured approach to enforcement actions, potentially focusing on clear violations rather than expanding interpretations of unfair practices. However, financial crimes and anti-money laundering compliance are likely to remain key priorities. Institutions should maintain robust compliance programs while looking for opportunities to streamline processes where appropriate.
6. International relations and sanctions
Trade policy and international relations could significantly impact financial institutions, particularly regarding sanctions programs and cross-border operations. The administration may take a different approach to international regulatory harmonization while maintaining strong oversight of financial crimes and sanctions compliance. Financial institutions should prepare for potential changes in international banking relationships and cross-border transaction requirements, while maintaining robust sanctions compliance programs.
7. Market structure and competition
Changes in regulatory approach could affect market structure and competition within financial services. This might include more flexible approaches to new bank charters, enhanced opportunities for non-bank participants, and revised frameworks for partnerships between banks and technology companies. The industry may see increased competition from new entrants as regulatory barriers are reduced, while traditional institutions may find new opportunities for innovation and expansion.
Strategic considerations for financial services industry stakeholders
Financial institutions should consider several strategic adjustments in preparation for potential policy changes:
- Review growth strategies in light of potentially increased M&A opportunities
- Evaluate technology and innovation initiatives under a more permissive regulatory environment
- Assess compliance frameworks to ensure continued robustness while identifying areas for efficiency
The path forward for financial services under a Trump administration will likely feature reduced regulatory burdens alongside continued focus on safety and soundness. Success will require careful navigation of these evolving dynamics while maintaining strong risk management practices. Industry participants should prepare for various scenarios while remaining attentive to both policy developments and market conditions that ultimately drive sector performance.
State-level oversight may increase as federal supervision potentially decreases, requiring institutions to maintain strong relationships with state regulators and ensure compliance with state-specific requirements. Additionally, institutions should carefully consider how changes in the regulatory environment might affect their competitive positioning and strategic opportunities in their key markets.
How BPM can support you
As the financial services landscape evolves under potential policy shifts, having knowledgeable advisors becomes crucial for navigating both opportunities and challenges. BPM’s financial services professionals help stakeholders optimize their operations and strategies through detailed policy analysis, regulatory guidance and strategic planning.
Whether you’re looking to evaluate M&A opportunities, explore technological innovation or restructure your compliance approach, our team can provide the insights needed to make informed decisions in this dynamic environment. Contact BPM’s financial services team today to discuss how we can help position your organization for success.
