Regulatory Change Management for Community Banks in 2025
The regulatory environment for community banks is undergoing a period of change and uncertainty in 2025, driven by a new presidential administration and a push for deregulation. With the Republican Party now controlling both the executive and legislative branches, the White House has begun reshaping the financial regulatory system in ways that could ease compliance burdens for smaller institutions—while also introducing new uncertainties.
For community banks, this evolving landscape presents a mix of opportunity and risk. Key themes include a centralization of regulatory oversight, rollback of consumer protection mandates and prior regulatory guidance, and an increased emphasis on tailored supervision for smaller banks.
Centralization and Deregulation Efforts
President Trump’s early executive actions have laid the groundwork for sweeping changes, and financial banking oversight agencies, such as the FDIC and OCC, may experience structural reform or overhaul. Lawmakers have proposed consolidating redundant functions, or even the agencies themselves, to streamline supervision. There is an argument this could benefit community banks by reducing the complexity and frequency of examinations; however, there has also been criticism of such a move. Concerns have been voiced by lobbying groups and state bank supervisors that an agency consolidation could undermine consumer confidence or expose banks to policy swings when presidential administrations change.
Meanwhile, the Trump Administration and Congress have begun scaling back certain rules that have long frustrated community banks. Among the key targets:
Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance: Proposed changes aim to simplify thresholds and reduce repetitive reporting obligations. As of March 2025, Treasury Secretary Scott Bessent announced that the Treasury Department would not enforce the Corporate Transparency Act and Beneficial Ownership (BOI) reporting requirements against US citizens, domestic reporting companies, and their beneficial owners.
Section 1071 of the Dodd-Frank Act requires financial institutions to collect and report data on small business lending activity, beginning in July 2025 for some institutions. A mark-up was held by the House Financial Services Committee in April 2025 to repeal the requirement, and similar legislation has been introduced in the Senate.
Current Expected Credit Loss (CECL) standard: Regulators are considering modifications that could delay or ease CECL implementation for smaller banks, since not all instances are applied evenly.
Cryptocurrency Oversight: On April 24, 2025, the Federal Reserve rescinded prior 2022 guidance requiring bank notification to engage in crypto-related activities, potentially opening new digital asset pathways for financial institutions. That same day, the Federal Reserve and FDIC jointly withdrew 2023 statements made under the Biden Administration on risk management obligations over crypto-asset activities. Additional clarity is expected from the two agencies, along with the OCC, in the coming weeks and months.
Tailored Frameworks: A Win for Community Banks?
Federal Reserve Governor Michelle Bowman—recently nominated as Vice Chair for Supervision—has advocated for regulatory differentiation based on asset size and risk exposure.
Under Bowman’s leadership, regulators could be expected to:
Reduce stress-testing and capital adequacy requirements for banks with less than $10 billion in assets.
Expand simplified reporting regimes.
Offer flexibility in compliance programs based on operational complexity.
Treasury Secretary Scott Bessent has also signaled his intention for the Treasury Department to play a larger role in regulatory tailoring for the country’s community banks. He stated in April that this could include “categorical exemptions of community banks from some regulations.” These changes could help level the playing field and allow community banks to focus more on relationship-driven lending and community development, rather than administrative overhead.
Challenges: Funding, Oversight, and the Road Ahead
While deregulatory momentum is strong, not all developments favor community banks. The administration has targeted cuts to the Community Development Financial Institutions (CDFI) Fund, which supports over 1,400 mission-driven lenders serving low-income and rural areas. If approved, this move could reduce capital access for underserved markets—a segment where community banks often lead.
The centralization of regulatory oversight may also introduce new political dynamics into what were previously technocratic processes. Community banks must prepare for a regulatory regime that could be more variable and responsive to electoral cycles.
Looking Forward
For community banks, 2025 offers a new regulatory reality: potentially lighter compliance in some areas, greater uncertainty in others. The rollback of consumer protections and prior agency guidance, the shift toward tailored oversight, and potential funding losses all require proactive strategic planning.
To successfully navigate this terrain, institutions should leverage trusted advisors like CSH, who specialize in banking compliance and regulatory trends. Maintaining a balance between seizing new growth opportunities and managing evolving risks will be critical.
By staying informed, adaptable, and committed to their mission, community banks can continue to thrive as pillars of local economic health—regardless of the national policy winds. Connect with CSH today and learn more about how we can support your institution.
written by: Jenna Skop
