Letting Out the Seams: Republican Bank Deregulation
Since Republican leadership at the House Financial Services Committee audaciously ignores that deregulation and lax oversight led to the regional bank failures in the spring of 2023 and the mega-bank crash of 2008, it’s little surprise they’d be unmindful that deconstruction of banking guardrails precipitated the savings-and-loan crisis of the late 1980s.
When President Trump signed S. 2155 during his first term in 2018, he raised from $50 billion to $250 billion the size of bank subject to enhanced federal supervision. Several regional banks promptly grew recklessly towards that new cap. The result: three of the four largest bank failures in U.S history.
This is not the only time in recent history that deregulation precipitated massive economic fallout. Somnolent regulators allowed banks to engage in massive mortgage fraud that led to a housing price bubble and, beginning in 2008, a subsequent collapse, leading to the Great Recession. Deregulation in the 1980s allowed the once sleepy savings-and-loan sector to expand lending and even investment into commercial real estate. This attracted a hoard of fraudsters to buy S&Ls. As former regulator William Black summarized, “The best way to rob a bank is to buy one,” which is the title of his book. Black and prosecutors secured 1,100 indictments, winning more than 900 convictions.
Comes now the “Community Bank Regulatory Tailoring Act.” To “tailor,” in the hands of principle sponsor Rep. Andy Barr (R-Ky.), truly means letting out the seams. The bill, which cleared the House Financial Services Committee on a mostly partisan vote Jan. 22, 2026, changes some 37 regulatory thresholds.
This undresses the Community Reinvestment Act (CRA) exams and mortgage disclosures. The CRA needs strengthening, not weakening. This law requires a bank to reinvest in its community, including those previously systemically excluded. If they don’t, regulators can block a merger. But a new study shows that banks often make promises in conjunction with a merger application, then fail to follow through.
In addition, the bill tears the fabric of the Bank Holding Company Act; the Depository Institution Management Interlocks Act; the Dodd-Frank Wall Street Reform and Consumer Protection Act; the Federal Credit Union Act; the Federal Deposit Insurance Act; the Federal Home Loan Bank Act; the Federal Reserve Act; the Home Mortgage Disclosure Act; the Home Owners’ Loan Act; the International Lending Supervision Act; the Real Estate Settlement Procedures Act; and the Truth in Lending Act. The bill also further shreds Dodd-Frank by inviting banks to gamble by reducing obligations to the Volcker Rule, which forbids proprietary trading.
For embellishment, the bill also applies a novel index. These new regulatory thresholds will rise in conjunction with changes in the nominal Gross Domestic Product (GDP). This self-inflicted tear means that levels will rise not only with real growth, but also the hot air of inflation. Real GDP adjusts for inflation. In the last 30 years, while the cost of living roughly doubled, nominal GDP has tripled. By choosing the more aggressive yardstick, this bill ensures that banks that were once considered systemic risks are magically redefined as “community” entities, simply by virtue of the calendar.
This bill marches through the Republican-led House in conjunction with other bank deregulation measures. The Main Street Capital Access Act, which also cleared the House Financial Services Committee, collects more than two dozen additional deregulatory misjudgments. It reduces funding safeguards, allowing banks to operate close to insolvency. Another provision requires tailoring not only to the size of a bank, but its own particular risk profile. In practice, this would allow any bank to sue an agency for alleged breach of this tailoring injunction, which could bring supervision of banking to a standstill. Another section removes “reputational risk” as a component of supervision. Reputation meaningfully impacts bank operations. For example, those banks that serviced convicted sex offender Jeffrey Epstein suffer frequent adverse media mention. Removal of reputational risk in supervision ignores a patent reality. Mergers would win nearly automatic approval, shrinking the number of banks truly attuned to their respective communities.
It cannot be forgotten that at the same time these deregulatory bills are being debated in Congress, Trump’s regulators are rolling back anti-discrimination rules while reducing bank exam staff. The Consumer Financial Protection Bureau staff now stands at a fraction of Biden Administration levels. This makes the likelihood that the American economy will suffer the consequences if the Congressional majority is successful in their deregulatory spree. these bill supporters defend their legislation with arguments that average Americans support, namely the promotion healthy banks that help grow communities. Sadly, the bills would do the opposite. Regional bank failures of 2023, the Wall Street crash of 2008 and the S&L crisis certainly did not wear well on the economy.