Reporters Note: Financial Regulators to Defend Deregulatory Blitz at Congressional Hearing
The top bank regulators from the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) will appear before Congress today. The regulators have much to defend following a blitz of deregulatory actions. In October alone, the Fed, FDIC, and OCC announced the withdrawal of their interagency Principles for Climate-Related Financial Risk Management, the FDIC and OCC published a proposed rule prohibiting the use of reputation risk by regulators, and the OCC announced sweeping changes to the scope of community bank supervision. In November, the Fed, FDIC, and OCC finalized a rule to modify supplemental leverage ratio requirements, in practice reducing the capital banks are required to hold.
These measures reduce oversight in the banking system, making banks and the broader financial system more vulnerable to unaddressed risks—including those from climate change. Rather than fulfill a deregulatory wishlist from bank lobbyists and President Trump, bank regulators should prioritize protecting the public from excessive Wall Street risk taking and promoting long-term stability in the financial system.
Bank regulators have abandoned climate risk supervision.
The FDIC, OCC, and Fed have withdrawn their interagency Principles for Climate-Related Financial Risk Management for Large Financial Institutions, a framework for the supervision of climate-related financial risks, which required banks with over $100 billion in assets to consider climate-related financial risks in business strategy, risk management, and strategic planning.
The agencies defended the withdrawal by claiming the climate principles are already captured in existing safety and soundness standards. But this approach fails to consider the unique features of climate risk, including the severity, irreversibility, complexity, and the longer time horizons along which climate change impacts will materialize. Should bank regulators wait for the impacts of climate change to be visible in financial risk metrics, the window for effective risk mitigation will be largely closed. As former Bank of England Governor Mark Carney said in his famous speech Breaking the Tragedy of the Horizon, “once climate change becomes a defining issue for financial stability, it may already be too late.”
The Federal Reserve’s decision to stop supervising banks for climate risk follows acknowledgement from Chair Powell that risks to the financial system from climate change are growing. Earlier this year, Chair Powell testified at a Senate Banking Committee hearing that as a result of climate change “if you fast forward 10 or 15 years, there will be regions of the country where you can’t get a mortgage, there won’t be ATMs, banks won’t have branches and things like that.” Despite acknowledgement of these risks, the Federal Reserve will no longer measure them, leaving banks to manage their own climate risks, with implications far beyond the bank itself.
The FDIC and OCC propose prohibiting consideration of reputational risk.
The FDIC and OCC have proposed a rule to codify the elimination of reputation risk from the agencies’ supervisory programs, prohibiting supervisors from taking adverse action against a bank on the basis of its reputational risk or the reputational risk of its prospective clients. Removing reputational risk from bank supervision has been a top priority for the Trump Administration and Congressional Republicans who want to guarantee continued access to financial services for preferred industries—namely digital asset firms and their financial backers—several of whom have alleged they were “debanked” due to their reputational risk.
Reputational risks are legitimate risks that can have material financial impacts on a bank. Swiss regulators, for example, cited recurring scandals that undermined the bank’s reputation in its post-mortem of Credit Suisse’s 2023 failure. Supervisors should be free to consider all risks to the institutions they supervise rather than be forced to turn a blind eye to risks that are politically inconvenient for the Trump Administration. While the crypto industry has been front and center in the fight against so-called “debanking,” they are not the sole beneficiaries. Fossil fuel companies and other polluting industries, firms and individuals engaging in money laundering, and banks that profit off of predatory practices, will benefit from bank examiners being forced to ignore reputational risks.
Though the fight against “debanking” has adopted the language of antidiscrimination, since the start of the Trump Administration, bank regulators have done nothing to address the real barriers to credit and other financial services faced by low-and moderate-income communities and communities of color. Instead, the same regulators are rolling back requirements under the Community Reinvestment Act—requirements to ensure banks are meeting the credit needs of the communities they operate in—and the OCC has suspended fair lending exams for banks under its supervision.
The OCC is turning a blind eye to risks in the community banking system.
Beginning in the new year, the OCC will significantly roll back supervision of community banks. The OCC bulletin entitled Examinations: Frequency and Scope for Community Banks eliminates mandatory examination activities not required by statute or regulation, including eliminating the requirement that bank examiners perform fair lending assessments and transaction testing for flood insurance coverage.
While community banks have neither the complexity nor the systemic importance of the largest banks, community banks play an important role in providing credit to communities across the country and their ongoing safety and soundness is essential for a well-functioning banking system. Community banks also have unique risks that large, diversified banks do not, including those arising from their limited geographic scope and concentrated business lines.
Climate change increases the risks faced by community banks. While the largest banks can diversify lending away from climate vulnerable geographies and sectors and offload commercial loans made to climate risky companies on to investors, community banks have less of an opportunity to diversify and fewer channels to offload risks. Community banks are also responsible for the vast majority of agricultural lending—one of the sectors most exposed to the physical risks of climate change.
Ensuring the long-term viability of community banks requires more than a blanket deregulatory approach. The OCC should work with community banks to ensure continued access to financial services in the communities these banks serve rather than take a hands-off approach.
Bank regulators weakened capital requirements
Solvency standards stand between bank health and taxpayer bailouts. Despite the importance of adequate bank capitalization to the soundness of individual institutions and broader financial stability, the Fed, FDIC, and OCC finalized a rule to modify supplemental leverage ratio requirements and reduce overall bank capital. As of September 2025, J.P. Morgan, the nation’s largest bank, reported equity at a tissue-thin 8 percent of assets. Meanwhile, the average American household, paying a mortgage, car loans, and often student debt, maintains assets 40 percent greater than its debts.
Asset values can change quickly, meaning the equity reported on bank balance sheets can vanish in the blink of an eye. This was the case for Silicon Valley Bank and the other regional banks that failed in 2023 and was the case across the banking sector in the global financial crisis. As bank equity shrinks, the scale of asset devaluations needed to create a crisis shrinks as well.
Rolling back capital requirements has been a top priority for the industry. Banks and banking associations spent tens of millions of dollars advocating for reduced capital requirements in 2024. This year that spending is paying dividends.