Monthly Bank Regulatory Report (February 2025)

Client Alert  |  February 28, 2025

We are pleased to provide you with the February edition of Gibson Dunn’s monthly U.S. bank regulatory update. Please feel free to reach out to us to discuss any of the below topics further.

KEY TAKEAWAYS

  • On February 18, 2025, President Trump signed Executive Order 14215 titled, “Ensuring Accountability for All Agencies,” in an effort to subject independent agencies, including the federal financial services regulatory agencies, to significant political control across activities including rulemaking, legal interpretations, enforcement priorities and expenditures. See our Client Alert on the Executive Order here.
  • Acting Chairman Hill announced that the FDIC is “actively reevaluating [its] supervisory approach to crypto-related activities,” including replacing Financial Institution Letter (FIL) 16-2022 requiring FDIC-supervised institutions to notify the FDIC prior to engaging in any crypto-related activities and “providing a pathway for institutions to engage in crypto- and blockchain-related activities.”
  • The federal financial services regulatory agencies’ leadership, agendas and regulatory priorities under the new administration remain in flux as leadership teams continue to take shape.
    • Russell Vought, the Director of the Office of Management and Budget, was named Acting Director of the Consumer Financial Protection Bureau (CFPB) pending the confirmation of former director of the Federal Deposit Insurance Corporation (FDIC) Board, Jonathan McKernan. Almost immediately, Acting Director Vought directed CFPB staff to “stand-down.”
    • Treasury Secretary Scott Bessent designated Rodney Hood, former Chairman of the National Credit Union Administration Board, as the Acting Comptroller of the Currency, pending the confirmation of Jonathan Gould. Gould was previously the Senior Deputy Comptroller and Chief Counsel of the Office of the Comptroller of the Currency (OCC).
    • Acting Comptroller Hood and Acting Director Vought join Acting Chairman Travis Hill as directors of the FDIC Board, which has reached its statutory limit of three directors from the same political party. The two remaining FDIC Board seats remain vacant. Matthew Reed was promoted to Acting General Counsel of the FDIC.
    • President Trump announced Brian Quintenz as his nominee for Chairman of the Commodity Futures Trading Commission (CFTC). Quintenz is a former CFTC Commissioner during the first Trump administration. Quintenz was also nominated to take the seat of Commissioner Christy Goldsmith Romero, who announced she would step down from the CFTC upon Quintenz’s confirmation, leaving Commissioner Kristin Johnson as the only Democrat on the CFTC’s five-person Commission.
    • The administration has not yet announced an intent to designate anyone to the role of Vice Chair for Supervision of the Federal Reserve Board following the Federal Reserve Board’s January 6, 2025 announcement that Vice Chair for Supervision Michael Barr will step down from the position effective February 28, 2025. Recall the Federal Reserve Board’s announcement indicated that it did “not intend to take up any major rulemakings until a vice chair for supervision successor is confirmed.”

DEEPER DIVES

Russell Vought Directs CFPB Employees to “stand-down.” Russell Vought assumed the role as Acting Director of the CFPB only days after President Trump fired former CFPB Director Rohit Chopra and designated Treasury Secretary Bessent as Acting Director. As Acting Director, Bessent directed staff to halt most work and suspended the effective date of all final rules that had not taken effect, consistent with President Trump’s January 20, 2025 executive memorandum ordering “all executive departments and agencies” to implement a regulatory freeze. Upon assuming the Acting Director role, Vought expanded the freeze to cover supervision and examination activities and cut the CFPB’s next funding request to zero. In a court filing on February 24, 2025, the Justice Department stated that Vought had “made no ‘decision to eliminate the CFPB.’” On February 11, 2025, President Trump announced Jonathan McKernan as his nominee for CFPB Director.

  • Insights. Among the federal financial services regulatory agencies, it seems that the CFPB has been an epicenter of change during President Trump’s first month—with three different agency heads in as many weeks and two separate stop-work orders—reflecting a shift in the CFPB’s priorities. In his February 27, 2025 nomination hearing before the Senate Banking Committee, McKernan was critical of the CFPB, stating that the agency “suffers from a crisis of legitimacy” that “must be corrected.” McKernan committed to taking “all steps necessary to implement and enforce the federal consumer financial laws” by centering the CFPB’s “regulation on real risks to consumers and by focusing its enforcement on bad actors.” McKernan’s nomination as CFPB Director also clears a path for his return to the FDIC Board, where he had served as a director since January 5, 2023—McKernan would have been unable to continue to serve as a member of the FDIC Board if a member of the same political party were confirmed as CFPB Director.

President Trump Seeks to Expand Oversight of Independent Financial Regulatory Agencies. On February 18, 2025, President Trump signed Executive Order 14215 titled, “Ensuring Accountability for All Agencies.” The Executive Order (EO) requires independent regulatory agencies to “submit for review all proposed and final significant regulatory actions to the Office of Information and Regulatory Affairs (OIRA) within the Executive Office of the President before publication in the Federal Register,” as traditional executive branch agencies have done for decades. The EO also directs the Office of Management and Budget (OMB) to review agencies’ obligations for alignment with presidential priorities and “adjust such agencies’ apportionments,” requires agencies to establish a White House Liaison and regularly consult and coordinate with the White House, and provides that the President and Attorney General will provide authoritative legal interpretations for the entire executive branch. Although the EO exempts the Board of Governors of the Federal Reserve System’s (Federal Reserve) “conduct of monetary policy,” it expressly applies to the Federal Reserve’s “conduct and authorities directly related to its supervision and regulation of financial institutions.” The EO also applies to other federal financial services regulatory agencies by reference to 44 U.S.C. § 3502(5), which includes the Federal Reserve, CFTC, FDIC, the Federal Housing Finance Agency, the Securities and Exchange Commission, CFPB and the OCC. (For up-to-date information on executive orders and other significant announcements made by the new administration, please visit our Executive Order Tracker. For additional insights, please visit our resource center, Presidential Transition: Legal Perspectives and Industry Trends.)

  • Insights. The EO indicates that the White House intends to play an increased role in shaping financial regulatory policy by subjecting the federal financial services regulatory agencies to significant political control across activities including rulemaking, legal interpretations, enforcement priorities and expenditures. The EO’s requirement that the Attorney General interpret the law for the executive branch implies that independent agencies may need to consult with the Justice Department before issuing regulations or guidance, and potentially before taking enforcement action, which may slow the pace of agency action in both the regulatory and enforcement space. Additionally, the OMB Director’s (Russell Vought) authority to shape independent agency expenditures could allow him to order nonenforcement of regulations or defunding programs that are inconsistent with the President’s policy preferences, and shift the focus of financial regulators toward the administration’s political priorities.

Federal Bank Regulatory Agencies Revisit Crypto-Related Activities. On February 5, 2025, in conjunction with the FDIC’s announcement that it was making additional disclosure of FDIC correspondence with banks and noting “that requests from … banks [to pursue crypto- or blockchain-related activities] were [previously] almost universally met with resistance,” Acting Chairman Hill made clear that the FDIC is “actively reevaluating [its] supervisory approach to crypto-related activities,” including replacing Financial Institution Letter (FIL) 16-2022 and “providing a pathway for institutions to engage in crypto- and blockchain-related activities.” On February 12, 2025, Federal Reserve Board Governor Waller gave a speech illustrating an openness to increased bank participation in the crypto industry. In his speech, Governor Waller called for a “regulatory and supervisory framework that addresses stablecoin risks directly, fully, and narrowly” so that banks and non-banks alike can issue regulated stablecoins. He also addressed the impact of fragmentation—from a technical perspective, in use cases, and in regulatory approach—on the potential growth of stablecoins.

  • Insights. The federal banking agencies, with the support of Congress, have been very clearly signaling they will revisit their approach to crypto-related activities, potentially starting with addressing the permissibility of at least some of the five crypto-asset activities highlighted in the interagency policy sprint, in particular crypto custody activities; activities involving payments, including stablecoins; and the facilitation of customer purchases and sales of crypto-assets (perhaps using finder authority). The federal banking agencies also seem poised to continue to support tokenization of traditional financial assets. Increased acceptance of more forms of digital assets, blockchain-related activities and tokenization into the banking system should be met with the requisite evolution of BSA/AML programs. In addition, the historic web of U.S. federal and state (as well as non-U.S.) regulatory requirements will necessitate careful consideration to minimize friction. In that regard, this is an area where global coordination will be critical for industry participants.

OTHER NOTABLE ITEMS

Speech by Governor Bowman on Changes to Federal Reserve Supervision. On February 17, 2025, Federal Reserve Board Governor Bowman gave remarks before the ABA’s Conference for Community Bankers. In her remarks, Governor Bowman reiterated consistent themes of greater accountability and transparency in bank supervision; increased focus on safety and soundness, as opposed to operational risk; streamlined de novo banking applications; and a comprehensive review and modernization of banking laws. Specifically, she noted that “non-core and non-financial risks” like information technology, operational risk, internal controls and governance have been “over-emphasized” and, while important, “should not drive the overall assessment of a firm’s condition,” particularly “at the expense of more material financial risks.” According to Governor Bowman, where those non-core non-financial risks are over-emphasized, it creates an “odd mismatch between financial condition and overall supervisory condition.”

Speech by Vice Chair for Supervision Barr on Risks and Challenges for Bank Regulation and Supervision. On February 20, 2025, Vice Chair for Supervision Barr gave a speech titled “Risks and Challenges for Bank Regulation and Supervision.” In somewhat contrasting remarks to those of Governor Bowman, Vice Chair for Supervision Barr outlined seven specific risks that he foresees ahead: “(1) maintaining and finishing post-financial crisis reforms; (2) maintaining the credibility of the stress test; (3) maintaining credible, consistent supervision; (4) encouraging responsible innovation; (5) addressing cyber and third-party risk; (6) risks in the nonbank sector; and (7) climate risk.”

Federal Reserve and OCC Release 2025 Stress Test Scenarios. On February 5, 2025, the Federal Reserve released its 2025 stress test scenarios. Consistent with its December 23, 2024 announcement and the December 24, 2024 suit challenging the legality of the current the stress testing framework, the Federal Reserve indicated in its announcement that it plans intends to “take steps soon to reduce the volatility of stress test results and begin to improve model transparency in the 2025 stress test” and “begin the public comment process on its comprehensive changes to the stress test this year.” The Federal Reserve also released two hypothetical elements to explore “how banks would react to credit and liquidity shocks in the non-bank financial institution sector during a severe global recession.” On February 13, 2025, the OCC announced the release of economic and financial market scenarios for use in the upcoming stress tests for covered institutions. This year’s baseline scenario features moderate economic growth; the severely adverse scenario considers the impact of an increase in “the U.S. unemployment rate [of] nearly 5.9 percentage points, to a peak of 10 percent,” accompanied by severe market volatility and a collapse in asset prices, including a 33% decline in home prices and a 30% decline in commercial real estate prices.

FDIC Abandons Defense of Administrative Law Judges. On February 24, 2025, the FDIC filed a notice in the United States District Court for the District of Kansas stating that the FDIC will not continue to defend the use of administrative law judges under 5 U.S.C. § 7521 in that case. CBW Bank (CBW) had sought declaratory and injunctive relief from the FDIC on the basis that the FDIC’s administrative proceeding against CBW was unlawful. In its notice, the FDIC stated that the decision was based on the Acting Solicitor General’s decision that “the multiple layers of removal restrictions for administrative law judges in 5 U.S.C. § 7521 do not comport with the separation of powers and Article II.” The FDIC is still seeking dismissal of the case on other grounds. The case is CBW Bank v. FDIC, 2:24-cv-02535.

FDIC Seeks to Modernize Customer Identification Program (CIP) Requirements. On February 7, 2025, Acting Chairman Hill sent a letter to FinCEN urging FinCEN to “align” CIP requirements “with modern financial services practices.” Acting Chairman Hill’s letter notes that fintechs often collect only the last four digits of a customer’s social security or tax identification number from the customer while requesting the rest of the identifiers from a trusted third party, and proposes that banks should be able to onboard customers in a similar fashion.

Chair Powell Addresses Basel III During Semiannual Monetary Policy Report. On February 11, 2025, Chair Powell testified before the Senate Banking Committee. Responding to questions from the Committee, Chair Powell reiterated the Federal Reserve’s commitment to working with new FDIC and OCC leadership towards “completing Basel III Endgame” “fairly quickly,” noting that he expects that the final rule’s top-line number will be “somewhere in [the] area” of capital neutral because “Basel III was not supposed to be an exercise in raising capital in U.S. banks.” In his testimony, Chair Powell revealed that the Federal Reserve is removing the concept of “reputational risk” as a factor in the manual utilized by the Federal Reserve for account access for master accounts.

Speeches by Governor Bowman on Bank Regulation and Supervision. On February 5, 2025 and February 11, 2025, Federal Reserve Board Governor Bowman gave a speech titled “Bank Regulation in 2025 and Beyond.” In her speech, Governor Bowman outlined her views of bank regulation and supervision in 2025. She emphasized the importance of (1) tailoring both a regulatory and supervisory approach based on a firm’s size, business model, risk profile and complexity, (2) a “problem-focused approach” to regulation and (3) innovation in the bank system. As examples of “problems” warranting regulatory changes, Bowman cited the erosion of U.S. Treasury market liquidity, the lack of transparency in stress testing and an increase in check fraud.

Speech by Vice Chair for Supervision Barr on Crisis Management. On February 25, 2025, Vice Chair for Supervision Barr gave a speech titled “Managing Financial Crises.” In his speech, Barr reflected on strategies employed in the spring of 2023 when SVB and Signature Bank failed and outlined five key principles for managing a financial crisis: (1) the response must be forceful enough to convince the market and public of the will to overcome the crisis; (2) a response must be proportionate so that it does not suggest conditions are worse than perceived; (3) leaders need to made decisions despite high levels of uncertainty; (4) the response must be clearly communicated, both internally and to the public; and (5) crisis responders must remain accountable for their decisions.

Speech by Governor Bowman on Community Banking. On February 27, 2025, Federal Reserve Board Governor Bowman gave a speech titled “Community Banking.” In her speech, Governor Bowman touched on familiar themes affecting community banks, among others that “overregulation and unnecessary rules and guidance imposed on smaller and community banks create disproportionate burdens on these banks, eventually eroding the viability of the community banking model.”

Speech by Governor Barr on Artificial Intelligence. On February 18, 2025, Vice Chair for Supervision Barr gave a speech titled “Artificial Intelligence: Hypothetical Scenarios for the Future.” In his speech, Vice Chair for Supervision Barr addressed how banks and bank regulators can best harness the benefits of AI while minimizing the risks and highlighted the importance of (1) institutions and regulators understanding AI, (2) remaining agile and flexible, (3) monitoring any concentration in economic and political power that results from the development of AI, (4) deliberately setting up AI governance, (5) monitoring the risk introduced in finance, and (6) monitoring how AI, and its adoption at nonbanks and banks, alters the banking landscape.

Congress Continues to Investigate Debanking. On February 5 and 6, 2025, the Senate Banking Committee and House Financial Services Subcommittee on Oversight and Investigations held further hearings on debanking.

FDIC Updates Public Report of PPE Notices. On February 19, 2025, the FDIC updated the public list of companies that have submitted notices for a primary purpose exception under the FDIC’s brokered deposit rule. Although the FDIC had originally committed to updating the public list, it had done so only rarely since it was created in 2022.

OCC Announces Withdrawal from Global Regulatory Climate Change Group. On February 11, 2025, the OCC announced its withdrawal from the Network of Central Banks and Supervisors for Greening the Financial System, stating that its participation “extends well beyond the OCC’s statutory responsibilities and does not align with [its] regulatory mandate.” The OCC announcement follows similar announcements by the Federal Reserve on January 17, 2025 and the FDIC on January 21, 2025.

The following Gibson Dunn lawyers contributed to this issue: Jason Cabral, Ro Spaziani, and Rachel Jackson.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. Please contact the Gibson Dunn lawyer with whom you usually work or any of the member of the Financial Institutions practice group:

Jason J. Cabral, New York (212.351.6267, jcabral@gibsondunn.com)

Ro Spaziani, New York (212.351.6255, rspaziani@gibsondunn.com)

Stephanie L. Brooker, Washington, D.C. (202.887.3502, sbrooker@gibsondunn.com)

M. Kendall Day, Washington, D.C. (202.955.8220, kday@gibsondunn.com)

Jeffrey L. Steiner, Washington, D.C. (202.887.3632, jsteiner@gibsondunn.com)

Sara K. Weed, Washington, D.C. (202.955.8507, sweed@gibsondunn.com)

Ella Capone, Washington, D.C. (202.887.3511, ecapone@gibsondunn.com)

Sam Raymond, New York (212.351.2499, sraymond@gibsondunn.com)

Rachel Jackson, New York (212.351.6260, rjackson@gibsondunn.com)

Zack Silvers, Washington, D.C. (202.887.3774, zsilvers@gibsondunn.com)

Karin Thrasher, Washington, D.C. (202.887.3712, kthrasher@gibsondunn.com)

Nathan Marak, Washington, D.C. (202.777.9428, nmarak@gibsondunn.com)

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