The New Regulatory Maze

The banking industry has long adapted to cycles of new regulation and deregulation—but when change happens rapidly, new challenges can emerge. With the Trump administration moving aggressively to scale back financial regulations, some banks may find themselves navigating a more fragmented and uncertain regulatory environment. 

A Patchwork of Oversight? 

One of the most immediate concerns is how regulatory oversight shifts when a key agency is effectively sidelined. The Consumer Financial Protection Bureau (CFPB) has seen its enforcement and rulemaking activities put on hold, leaving its future uncertain. While some in the industry support reducing the agency’s reach, its paralysis may not necessarily reduce regulatory pressure—it could simply shift it, particularly for banks operating in states where financial regulators are prepared to step in.

Adrienne Harris, superintendent of the New York Department of Financial Services, made it clear that her agency is prepared to “fill the gaps” left by the federal rollback. “If there are new gaps that emerge because we don’t have a partner [at the federal level], then we’ll work to fill those gaps as appropriate,” she told the Financial Times. Some regulators have warned that increased state-level oversight could complicate banking regulation. Last year, then-Acting Comptroller of the Currency Michael Hsu cautioned that growing fragmentation in banking laws risked undermining the national banking system, stressing the OCC’s role in defending federal preemption.

That fragmentation could also create challenges for banks. Phil Goldfeder, CEO of the American Fintech Council, warns that this shift could be more disruptive than maintaining a single federal regulator. “The response at the state level could serve to be more damaging than what’s happening at the federal government,” he told Politico. Instead of regulatory relief, banks could face a patchwork of varying state regulations.

Have We Seen This Before?

The idea of states stepping in to fill regulatory gaps isn’t new. This trend emerged in the Reagan administration and resurfaced in the early 2000s, when the federal government scaled back enforcement in areas like banking oversight and consumer protection, prompting states to introduce new regulations in areas including consumer protection, lending, and antitrust. The same pattern may be unfolding now.

Before his dismissal from the CFPB, former Director Rohit Chopra encouraged states to expand their regulatory reach, and some—like California—are already doing so. Governor Gavin Newsom recently signed a package of consumer protection bills targeting overdraft fees, medical debt reporting, and automatic subscription renewals. 

The Uncertain Road Ahead

The impact of deregulation isn’t always straightforward. While less oversight can mean fewer compliance costs in some areas, banks could also face cost shifts—potentially even increases—depending on how state-level regulations evolve. If banks suddenly have to navigate multiple state-level regulations rather than a single federal framework, the result could be more complexity, not less, Goldfeder said.

“When you tear it all down, you potentially lose what had been good regulatory policy,” he said.  While some industry leaders see the CFPB’s rollback as necessary, others caution that shifting oversight to the states could lead to inconsistent enforcement and new compliance challenges.

With regulatory shifts still unfolding, financial institutions will need to remain vigilant. Whether the new landscape leads to meaningful relief, unintended complications, or a mixture of both will depend on how state and federal regulators adapt in the months ahead.

For a deeper look at the potential roadblocks to deregulation—including political resistance, legal hurdles, and industry concerns—read our interview with financial regulation expert Douglas Elliott.