Next year could bring an upheaval in US bank regulation as Republicans take charge, potentially encouraging M&A and rolling back some Biden administration-era rules.

With new leadership chosen by President-elect Donald Trump for the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Consumer Financial Protection Bureau, along with new leadership in the Republican-controlled congressional committees that handle banking, banks are expecting many changes. The new administration is also expected to encourage the cryptocurrency and financial technology sectors, which both compete with banks and can partner with them.

Although there is talk of consolidating regulators by abolishing the FDIC, observers see that as unlikely.

"Candidly, between that and moving in the blockchain crypto space, they're going to have to pick which one they want to deal with and likely utilize their political capital in that way," said Robert Maddox, a partner at Bradley Arant Boult Cummings LLP who represents clients before regulatory agencies, including the Federal Reserve Board and the Office of the Comptroller of the Currency.

"There are more people interested in finding regulation and/or bank accounts for these cryptos than there are in reducing what people consider the regulatory structure in America," Maddox said in an interview.

M&A environment

After many slow M&A deal approvals during President Joe Biden's administration, banks are expecting a change because Republicans tend to generally be more encouraging of M&A.

"We're expecting significantly increased activity in M&A in 2025 compared to recent years," Kevin Petrasic, partner at Troutman Pepper Hamilton Sanders LLP, said in an interview.

Regulators have been looking at Community Reinvestment Act compliance as part of deal reviews, but those factors might have less of an effect going forward.

"I think there's going to be a lot of pressure in deal reviews to get the economy moving again by taking a more permissive approach, and so that is one area where we could see regulators having more flexibility than they've shown in the last few years," Erin Bryan, partner and co-chair of Dorsey & Whitney LLP's Consumer Financial Services Group, said in an interview.

The most high-profile deal might be Capital One Financial Corp.'s proposed acquisition of Discover Financial Services. The Office of the Delaware State Bank Commissioner approved the deal Dec. 18, but federal approval is still pending.

The merger arbitrage likelihood has moved to an 80% chance of approval from 50-50, though there is always a chance of a deal not receiving approval no matter the administration, said John Hecht, an analyst at Jefferies LLC.

However, Ed Mills, a managing director and Washington policy analyst at Raymond James & Associates, said the deal is more uncertain than others because of "idiosyncratic portions," such as the involvement of a credit card network and "Trump's comments that are more populist related to credit cards."

Crypto companies, fintech partnerships

Bank-fintech partnerships might be encouraged by the incoming administration, and nonbank crypto and other fintech companies that compete with banks are also likely to be supported.

Many banks and credit unions are eager to proceed with products related to digital assets, which the FDIC and National Credit Union Administration have been slow to accept since there is a lack of clear regulations, Bryan said.

"There's also very little in the way of prohibitions against entering into those spaces, and so new leadership could really make a huge difference in how quickly some of those programs can move forward," Bryan added. "Because it's not necessarily a matter of creating new regulations as much as issuing some clear statements that the laws really don't prohibit some of the innovations that banks and credit unions are looking at."

Trump started a crypto business of his own, World Liberty Financial Inc. It filed a registration statement with the US Securities and Exchange Commission on Oct. 30 that said the company plans to sell digital tokens to raise up to $30 million for working capital.

"We know that the new president, too, is big on digital assets," Tracy Moore, an investment banking veteran who is now director of thought leadership at the software firm Fenergo, said in an interview. "So I think we'll see a push for that, and with the push and the potential shift there, you'll see some more guardrails and maybe some more guidance from the regulators on how financial institutions manage that asset."

Regulatory contraction

The new CFPB director could revoke rules, such as those related to open banking and overdraft fees. In November, Elon Musk, presumed Trump appointee for a new Department of Government Efficiency, called to "delete" the CFPB.

There is not as much overlap as some have said among the federal regulators, Bryan said. She instead predicted a scaling-back of regulation and enforcement. The CFPB's small business data collection rule under Section 1071 of the Dodd-Frank Act is probably "one of the first that will be on the chopping block," Bryan said.

"Eliminating an entire federal agency is not an easy task," Bryan added.

Combining and removing regulatory agencies, meanwhile, is looking unlikely.

"Anyone who looks at our financial regulatory system for the first time will rightfully say that it looks like a Frankenstein's monster," Isaac Boltansky, managing director and director of policy research at BTIG LLC, wrote in an email. "With that being said, Congress is needed for any consequential structural changes, and it is incredibly difficult to envision a scenario where this issue makes it on the agenda, let along gets the Democratic support necessary for enactment."

Rep. French Hill (R-Ark.), who was chosen to chair the House Financial Services Committee starting in January 2025, discouraged abolishing the FDIC.

"The FDIC has poor leadership right now, but it's been an institution that's carried out its mission in a very tailored way," Hill told a Bloomberg podcast. "There are a lot of improvements that need to be made, in my view, in bank supervision. ... Just taking one out of context and saying that you should do away with the FDIC I don't think is particularly the right way to go about it."

Ongoing litigation

Some rules are the subjects of pending court cases, creating uncertainty for industry participants. They include the Corporate Transparency Act, which would require companies to report ownership information, and Community Reinvestment Act rules.

Fenergo's Moore predicted the transparency act's beneficial ownership reporting requirements will stay in some form and said she expects bipartisanship related to anti-money laundering and combating financial crime.