Banks would be struck with uncertainty if Project 2025 proposals to gut regulators come to fruition.
The Heritage Foundation, a conservative think tank, published the 2025 Presidential Transition Project, which has a wide-ranging set of policy proposals, including some related to the federal bank regulators. If former President Donald Trump were reelected and Republicans gained control of Congress, the goal is to enact these proposals, though Trump has made attempts to distance himself from the document.
Bank-related proposals include consolidating the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Federal Reserve and the National Credit Union Administration's regulatory and supervisory functions as well as restraining the Consumer Financial Protection Bureau. Such moves would spell trouble for the banking industry that is used to a multi-regulator system and the current rules they operate under.
"The industry, whether they like it or not, may have invested a lot of money to comply with the rules, and then you change them," Chip MacDonald, managing director of MacDonald & Partners LLP, said in an interview. "Then they have to unwind all that, and that has a cost, and part of the cost is uncertainty. And that uncertainty creates a lack of action because people are trying to figure out what to do."
For example, the document calls for a curtailing of the CFPB, but banks have already spent a lot of time and funds preparing to comply with the rules targeted in Project 2025's CFPB-related proposals. The plan proposes to repeal small business data collection under Section 1071 of the Dodd-Frank Act, for which the agency has recently extended compliance dates.
Moreover, oscillating between policies led by Democrats and Republicans is, in itself, difficult and costly for the bank industry.
"Do you have to staff up? Staff down? That's a lot of money and investment," Robert Maddox, partner at Bradley Arant Boult Cummings LLP who represents clients before regulatory agencies, said in an interview. "By the time you actually start to get comfortable with it, it changes again. It's not the right way to run an economy and certainly not the right way to run a bank."
From 3 bank regulators to 1
One proposal supports legislation to consolidate the three federal banking regulators as well as the National Credit Union Administration into one entity. The reasoning includes making regulators more efficient, reducing costs and eliminating regulatory arbitrage, the document claims. This is part of the US Treasury Department section, which is co-authored by Stephen Moore, a senior economic adviser to Trump during his 2016 campaign.
Such a move would hurt the industry more than help it, industry experts argue.
"Having three regulators, as well as the state regulators, is helpful because they each have different perspectives and see different things and have different and overlapping goals," MacDonald said. "That actually works to the public's and the industry's benefit."
The proposal is unlikely to gain traction, as similar proposals have floated for decades and failed to make any progress, said Michele Alt, partner and co-founder of Klaros Advisors LLC and former lawyer at the Office of the Comptroller of the Currency.
"We'll see if this gets any traction this time around," Alt said in an interview. "My prediction is it will not."
More broadly, most bank-related Project 2025 proposals are unlikely to gain traction, sources said. The last time Republicans controlled the presidency and both houses of Congress, they only accomplished pieces of their agenda, and it would take many years of united government for these proposals to have a chance of happening.
"The implementation of this is long, and it would take constant dedication of both resources financially and politically," Maddox said, adding that attention spans are short. "I don't think this will be the highest priority that happens" compared with other domestic and international policy areas.
Fed focus
Still, the Fed specifically was a large target in Project 2025 compared to the other regulatory agencies. The document calls for stripping the agency's bank regulatory powers down to only include financial stability.
The document also specifically calls out the Fed's lending windows, arguing the agency's role as a lender of last resort should be curbed. The call comes at a time when regulators have been encouraging use of it, namely the Fed's discount window.
The writers of this section, which included Paul Winfree who held multiple roles in Trump's White House, said the current structure encourages banks to engage in risky practices, but bank industry experts disagree.
"The idea that it encourages excessive risk-taking is more theoretical than it's been shown to be the case," Alt said.
The Fed's emergency lending windows are usually used in times of stress and help to prevent more bank failures, experts said. This was evidenced in the wake of the failures of Silicon Valley Bank and Signature Bank when discount window lending surged and the Fed created a new emergency funding source, the Bank Term Funding Program.
"If you go back and look at the history of failed institutions in America, it's usually, unless there has been some type of intervention, one bank going down usually will lead to another and another," Maddox said. "You get into a death spiral or a vicious circle. And so that's the whole purpose of the lender of last resort."