The long-discussed idea of consolidating US federal bank regulators is once again a talking point, but many in the industry would settle for improving the coordination between the agencies.
The topic of regulator consolidation has been bandied about for decades and was suggested in Project 2025, an often-cited conservative policy playbook. Bankers are starting to see signs of lighter regulation under President Donald Trump's administration, and the breakneck pace of change in Washington is adding to speculation about consolidation.
However, Treasury Secretary Scott Bessent seemed to throw cold water on the notion. "We need our financial regulators singing in unison from the same song sheet," Bessent said during a speech March 6. "To be clear, this does not mean consolidation of agencies, but coordination via Treasury."
Still, the policy stances of the current administration have been fluid, and previous reports have noted that combining bank regulators is something the president's advisers had considered.
In general, bigger banks, which interact directly with multiple federal regulators, are more open to agencies consolidating. In February, Bank of America Corp. Chair and CEO Brian Moynihan noted that combining regulators has become more feasible, given that the depository industry itself has consolidated. As of the end of 2024, there were 4,543 US banks, according to S&P Global Market Intelligence data.
"The idea of national regulatory consolidation, even on a dynamic country like the United States, is probably more appropriate today than it was when you had [10,000 or] 15,000 banks all distributed all over," Moynihan said at The Economic Club of Washington, DC, on Feb. 25.
Smaller, state-chartered banks tend to deal with one federal regulator, and they are more wary of a push for consolidation. The Independent Community Bankers of America (ICBA) said, "Wall Street bank executives and others have called for" the idea of merging regulators.
"While community banks are strong advocates for streamlining federal banking regulations and building efficiencies, structural reforms are better focused on protecting agency accountability by enacting board oversight at the federal banking agencies with meaningful community bank representation and ensuring regulatory oversight is tiered and risk weighted," ICBA President and CEO Rebeca Romero Rainey said in a statement Feb. 26.
Community banks often have the Federal Deposit Insurance Corp. as their primary federal regulator. At year-end 2024, the FDIC was the primary federal regulator for 2,870 banks, which was more than the combined total for the Office of the Comptroller of the Currency (OCC) and the Federal Reserve. However, the total assets of banks that had the FDIC as their primary regulator was $4.152 trillion, far less than $15.862 trillion for the OCC and nearly on par with $4.101 trillion for the Fed, according to Market Intelligence data.
However, most banks are supervised by two of the three federal regulators because more than 3,000 banks in total have a bank holding company structure, and the Fed supervises bank holding companies. Subsidiary banks or banks without a holding company structure that are state-chartered and not members of the Federal Reserve System are regulated by the FDIC, while national banks are regulated by the OCC.
Even small banks can envision benefits coming from consolidation. Houston-based Capital Bank, which had $636.8 million in assets as of Dec. 31, 2024, is regulated by the Texas Department of Banking along with the FDIC and, at the holding company level, the Fed. In an interview, Capital Bank Senior Executive Vice President and CFO Amy Birt expressed some optimism about the idea of consolidating federal regulators.
Based on Birt's experience and what she has heard from other banks, she said the state and three federal regulators are often focusing on different topics such as liquidity or whatever the hot-button issue of the moment is.
Navigating the differences
The differing guidelines between the agencies can be as innocuous as the regulator preferring to review electronic or printed-out board materials. Other issues can be larger, such as whether to include owner-occupied properties in commercial real estate calculations.
Whatever the differences, banks often have to navigate varying guidelines from regulators, and that is a source of frustration.
"We need clear, easy-to-understand rules to follow, and we need them to be administered equally across the business that we do," Cadence Bank Chairman and CEO James D. Rollins III, said in an interview. "The same activity should be getting the same regulation, regardless who the regulator is, regardless what the business is."
Cadence had $47.02 billion in assets as of Dec. 31, 2024, and that put it outside the 50 largest banks. However, Rollins said his company gets treated like a "big corporate bank."
"What bankers want, whether it's with one regulator or the current three-regulator processes that we've got, we want clear, consistent and balanced regulation," Rollins said.
Between the three federal bank regulators, there are "some disparities or some differences between how they think and how they act," Rollins said, adding that sometimes one or two issue guidance rather than all three issuing joint guidance.
In its annual report released in April 2024, JPMorgan Chase & Co. called for better coordination between the regulators and suggested that the industry work with agencies in an effort to focus the prioritization on the issues that are deemed most important. The report noted how there is often duplication in the rules that leads to the agencies along with banks wasting resources.
"The many overlapping rules contribute to the bureaucracy that generates an extraordinary amount of make-work," the report noted.
Others have argued that the lack of coordination between regulators can lead to far worse outcomes than just wasted resources. In March 2024, PNC Financial Services Group Inc. Chairman and CEO William Demchak said "regulation is uneven" between the federal agencies, and that was part of the reason behind the 2023 bank failures, which included Silicon Valley Bank, whose primary regulator was the Fed, and Signature Bank, whose primary regulator was the FDIC.
"Bluntly, if that was an OCC bank, that never would've happened," Demchak said at the time.
Not a new idea
Concerns over disparate regulation after the 2008 financial crisis led to regulator consolidation when the Office of Thrift Supervision was effectively rolled into other agencies, mostly the OCC, in 2011 as a result of the Dodd-Frank Act. But even before then, the idea of consolidating bank regulators had been discussed for years. The notion was the topic of Government Accountability Office congressional testimony in 1994.
The suggestion resurfaced as a proposal in Project 2025, which included a host of policy ideas published by conservative think tank The Heritage Foundation that was seen as a potential playbook for Republicans. Project 2025 noted that the administration "should establish a more streamlined" approach to banking supervision "by supporting legislation to merge" the OCC, FDIC, National Credit Union Administration and non-monetary functions of the Federal Reserve.
Bank advisers have said a drawback of consolidation is that it can create uncertainty and lead to banks unwinding systems that were put in place to meet the current framework.
If the FDIC was consolidated into the OCC, which regulates national banks, some of the small-bank experience could be lost, and "there would be transition risks of things dropping between the cracks," Chip MacDonald, managing director of MacDonald Partners LLC, said in an email to Market Intelligence. In addition, state banks would probably have higher costs.
Community banks could find it disruptive if they needed to adjust to the other regulators, lawyers said.
"Smaller banks that have maybe never dealt with the Fed or the OCC might say, 'Well, I like my FDIC examiner. I don't want to be mixed up with these big banks,'" Max Bonici, partner who advises financial institutions on regulation, supervision and enforcement at Davis Wright Tremaine LLP, said in an interview.
In lieu of full consolidation, the agencies might keep small numbers of people at all three agencies but coordinate them more so they, de facto, function as one regulator, without Congress actually combining them, Bonici suggested.
A recent executive order could facilitate alignment between the agencies by putting regulatory officials under "presidential supervision and control." President Donald Trump's executive order issued Feb. 18 would require agencies to submit "all proposed and final significant regulatory actions" to an office within the Office of Management and Budget, which is part of the Executive Office of the President. The Office of Management and Budget would also have control over adjusting agencies' spending.
Options open
Some banks do like the choice that the current regulatory framework provides. There have been times when banks have switched between federal and state charters, as New York Community Bancorp Inc., now known as Flagstar Financial Inc., did when its merger application seemed to be stuck and was pending approval.
While many frown upon the idea of banks switching regulators for their benefit, not all believe the industry wants to give up having an option.
"I have no doubt that if you polled the banks out there, they would say, 'Leave it the way it is,'" Thomas Vartanian, a former general counsel of the Federal Savings and Loan Insurance Corp. and the Federal Home Loan Bank Board in the Reagan administration, said in an interview.
Vartanian said there are two reasons banks do not want to see change.
"No. 1 is they know the system; they know how to work within it," Vartanian said. "They don't want to learn a new system and figure out how to win in it."
The other reason is regulatory arbitrage. "If you don't like your federal regulator, you can get a state charter," Vartanian said.
Still, Vartanian, now executive director of the Financial Technology & Cybersecurity Center, backs the idea of consolidation. "We are long past the point where we should have consolidated regulators," he said.
Vartanian added that there is a cost to dealing with multiple banking regulators as well as securities and consumer protection commissioners.
"Guess who pays all of the freight for all of that regulation? It gets passed on to the consumer," Vartanian said.
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