KBRA Financial Intelligence

Trump Consolidates Influence Over the Future of Banking Regulation

Injunction Defers Significant CFPB Layoffs

Just as the Trump administration’s efforts to shrink the Consumer Financial Protection Bureau (CFPB) seemed to be getting underway, a federal judge issued an injunction last Friday blocking a sweeping reduction in force. This effectively overrode a separate court’s ruling on Thursday that would have allowed the initiation of mass layoffs, impacting as many as 1,500 staffers, which is equivalent to nearly 90% of the bureau’s workforce. CFPB Acting Director Russ Vought claims that cuts are part of an effort to “restructure the Bureau’s operations,” but President Trump has previously noted his intention is to eliminate the CFPB.

While a total shutdown of the CFPB cannot be done unilaterally and would require an act of Congress, the scope of its operations is being reduced significantly. In addition to layoffs, an internal memo has noted that the CFPB will seek to slash its number of supervisory exams by half and deprioritize its oversight in states that maintain “ample regulatory and supervisory authority” to avoid duplicative enforcement efforts. The CFPB is one of the U.S.’s four major bank regulators, exercising supervisory authority over banks with at least $10 billion in total assets, along with several other financial firms. However, the bureau now plans to pivot its supervision away from nonbanks so that 70% of supervisory efforts will be focused on banks and depository institutions, up from less than 40% recently. Along with canceling $100 million in vendor contracts and the lease on its previous Washington D.C. headquarters, Acting Director Vought stated that the bureau will no longer draw on its typical funding mechanism provided by the Fed. The CFPB will instead subsist on more than $700 million held in its cash reserves.

Financial Regulators Face Further Shake-ups and Downsizing

Reductions in force are also underway at the FDIC and OCC, where several hundred employees have already been let go from each agency. However, this scale of attrition is expected to be significantly more modest than the layoffs planned at the CFPB. The FDIC is expected to reduce head count by a total of 1,250 workers via the termination of probationary employees, deferred resignation, voluntary separation, and early retirement programs. This would cut the FDIC’s staff by about one-fifth. For its part, the OCC has so far reduced its workforce by 140 employees, or less than 5% of the agency’s workforce.

KFI previously noted that the CFPB has been accused of being an especially aggressive enforcer of consumer protection laws in recent years. In 2022 and 2023, consumer relief payments stemming from CFPB enforcement actions surged to their highest levels since 2015, prompting criticism from banking industry groups. Despite having a significantly smaller workforce than the FDIC and OCC, the CFPB has consistently collected more in annual CMPs than the combined total collected by those two agencies for most of the past decade. Enforcement actions issued by the FDIC, OCC, Federal Reserve Board (FRB), and National Credit Union Administration (NCUA) can now be tracked through KFI’s newly developed Dashboard, which allows users to filter cases by date, penalty amount, and institution.

Just as the Trump administration has sought to reshape financial regulation among banks and other for-profit financial institutions, the White House has also started to act on credit unions regulation as well. Last week, President Trump fired two of the three sitting members of the NCUA Board. One of the fired board members, Todd Harper, was appointed by Trump in 2019 and took over as Chairman in 2021. With just one member of the board remaining, the NCUA cannot implement any changes to policy or enact new enforcement actions, as these require a quorum of at least two votes from the board.

Trump Admin to Reshape Fed and Bank Capital Rules

White House efforts to adjust the financial sector’s regulatory landscape may eventually extend to the realm of monetary policy, as the president seems increasingly likely to replace Fed Chair Jerome Powell. Although the president has been a vocal critic of the Fed’s rate policy in both his first and second terms, he recently defused his threats to outright fire Powell, which would have likely ignited a drawn out judicial conflict in the courts, as well as potential opposition from within Congress.

Trump will have the ability to nominate a new Fed Chair—replacing Powell—in just over a year’s time. Powell’s current term as Chair ends in May 2026 and Governor Philip Jefferson’s status as Vice Chair will expire in September 2027. Although both Powell and Jefferson can remain on the Fed’s seven-member Board of Governors through January 2028 and January 2036, Governor Adriana Kugler’s seat on the board will be open in January 2026. That will give the Trump administration its first chance to nominate a completely new policymaker to the Board of Governors.

Trump has already made his first move to reshape the Fed’s oversight of the banking system by nominating Governor Michelle Bowman to the position of Vice Chair for Supervision. In this position, she would lead the Fed’s Committee on Supervision and Regulation, which is responsible for developing policy recommendations for the board and the enforcement of Dodd-Frank mandates. Former Vice Chair for Supervision Michael Barr announced his resignation from the role earlier this year, even though his term was originally set to run until July 2026.

Barr was a key figure in formulating proposed adjustments to U.S. bank capital requirements, in accordance with the final stage of Basel 3 Endgame. Endgame seeks to update global capital standards among financial institutions, based on agreements within the Basel Committee on Banking Supervision. The terms of potential adjustments to capital adequacy ratios must be agreed upon by the Fed, FDIC, and OCC. Efforts to implement Endgame have remained deadlocked for years, with no consensus reached on a final proposal. If confirmed by the Senate, Governor Bowman will step in as the Fed’s primary representative in negotiations between the central bank, FDIC, and OCC, which all must agree to the terms of potential adjustments to capital adequacy ratios.

KFI noted last January that Trump’s mandate to nominate a new Vice Chair for Supervision, as well as new heads of the FDIC and OCC, will solidify the president’s influence over the shape of banking regulation over the next four years. For her part, Bowman acknowledged the potential benefits of increases to capital requirements in the past, but has also cautioned that regulators should “carefully weigh the benefit of increased safety from higher capital levels with the direct costs to banks,” which might push certain financial activities outside the regulatory perimeter of the banking system.

Proposed regulatory capital increases were already being watered down in the latest guidance presented by the Fed, with a 9% increase in aggregate common equity tier 1 (CET1) capital requirements for banks with assets above $250 billion, replacing a previously suggested 19% hike. For banks with $100 billion-$250 billion in assets, the guidance would require unrealized gains and losses on their securities to be included in regulatory capital, likely resulting in a smaller increase of up to 4% in capital requirements for banks with significant trading activities. With Bowman poised to succeed Barr—and with less pushback likely to emerge from Trump-appointed counterparts at the OCC and FDIC—it is possible that future proposals could further narrow planned reserve requirement increases.

Applying more thorough tailoring appears to be a critical aspect of any successful Basel 3 implementation in the U.S., as Bowman has noted, stating that “the failure to apply tailoring is a fundamental flaw of the Basel capital reforms as proposed, and one that must be addressed.” Tailoring could transform future rule changes into a more incremental set of capital requirement increases—based on bank asset sizes—so that the regulatory framework resembles a “slope” instead of a “cliff.”

An approach to new regulations that segments banks into too few regulatory cohorts may create significant discrepancies in regulatory capital requirements among banks of similar size. Bowman has in the past highlighted “distortive effects” on the banking system that might result from a sudden and steep jump in capital requirements kicking in at the $100 billion asset threshold. For example, banks below this level may have to consider “the ongoing viability of remaining at an asset size near that threshold,” while banks above it “will face strong pressure to shrink or to merge with other firms.”

Specific details of an updated capital requirements proposal from the Fed remain uncertain, but KFI will continue to track developments as they unfold. For continued coverage of this topic and more in-depth research on the U.S. financial sector, subscribe to KFI Insights, powered by our comprehensive suite of banking and credit union data tools.