Treasury Secretary Scott Bessent today shared several steps the Trump administration plans to take to drive a “community bank comeback,” including a renewed push for regulatory tailoring, a review of core platform providers, friendlier capital requirements, and revised requirements for bank anti-money laundering/countering the financing of terrorism programs.
“To expand opportunities for all Americans, the banks that serve Main Street must have the same chance to succeed as the banks serve Wall Street, but the post-[2008 financial] crisis regulatory framework has instead become a threat to the community bank model,” Bessent said at the Federal Reserve’s Community Bank Conference. “Since 2010, we’ve lost 3,600 community banks.… And in a disturbing new development, de novo chartering has dropped precipitously, averaging just six new banks per year since 2010.”
Bessent pointed to several actions banking regulators have taken in recent months to refocus supervision on material financial risks, including ending policies on climate risk and reputational risk. He also shared several proposals the administration believes will drive community bank growth:
- The Treasury Department “will continue to drive reforms to improve regulatory tailoring, refocus the culture of supervision and modernize our illicit finance regulation,” Bessent said. Specific priorities include reforms to the rating system, new processes for monitoring examiner compliance with supervisory policy, mechanisms for independent appeals of supervisory criticisms, and coordination to avoid duplicative examinations by different regulators.
- A review of core platform providers, “including contract terms that prevent community banks from innovating for the future.”
- The Financial Crimes Enforcement Network and bank regulators “are hard at work” on a new rule to define the requirements for an effective AML/CFT program. Bessent said. “My expectation is that a proposal will recenter supervision where it should be: on the effectiveness of a bank’s AML/CFT program.” As part of that effort, FinCEN today released an FAQ clarifying suspicious activity reporting requirements.
- The Treasury Department “is focused on ensuring that modernization of our capital framework ends the capital arbitrage that drives bank lending to nonbanks,” Bessent said. “This will likely entail reduced capital requirements for large banks on mortgage loans, investment-grade corporate loans and some other important exposures. We must therefore ensure parity by giving smaller banks at least the option to benefit from these reduced requirements.”
- Bessent said he supports congressional efforts to modernize the deposit insurance framework. “I’m encouraged to see emerging bipartisan support for increasing FDIC insurance limits on noninterest-bearing transaction accounts. “
- The Treasury Department has taken “an informed and careful” approach to Fannie Mae and Freddie Mac, Bessent said. “Any actions on [Fannie and Freddie] must not increase borrowing costs and must preserve what works in the current system. That includes the prohibition on volume-based discounts for large lenders, as well as the cash window and other features that preserve equal secondary market access for small lenders.”
- Bessent noted that Fed Vice Chair for Supervision Michelle Bowman has advocated for revisiting the community bank leverage ratio. “I expect that effort will soon culminate in a proposed reduction in the community bank leverage ratio,” he said.
ABA welcomes Treasury, Fed support for regulatory changes
The American Bankers Association was highly encouraged by the wide range of pending reforms outlined at the conference, ABA President and CEO Rob Nichols said.
“The changes Secretary Bessent spelled out, many of which have long been recommended by ABA, will allow America’s community banks to better serve their customers and communities,” Nichols said. “In particular, we welcome Treasury support for lowering the Community Bank Leverage Ratio, which would help make this simplified capital framework attractive to a broader range of community banks without compromising safety and soundness.”
Nichols added that after the conference, “we will be better prepared to work with the Fed, Treasury and all the banking agencies to create a regulatory framework that gives banks of all sizes the chance to compete and succeed today and into the future.”
