Bank Regulatory News and Trends

This regular publication from DLA Piper focuses on helping banking and financial services clients navigate the ever-changing regulatory landscape.

In this edition:

• “De-Banking” and the elimination of reputational risk.
• Fed rescinds guidance on bank crypto-related activities, joining FDIC and OCC.
• CFPB staffing “back and forth.”
• Lawmakers seek CFPB budget cuts in budget reconciliation.
• House Financial Services Republicans call for Biden-era regulations to be withdrawn.
• OCC withdraws climate risk guidance for large banks.
• California issues rulemaking for digital financial asset regulation.

“De-Banking” and the elimination of reputational risk. On March 20, 2025 and March 24, 2025 respectively, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) announced that they will remove references to reputational risk from manuals and guidance issuances. Leadership at both agencies expressed concern that reputational risk was a proxy for ideological direction within the banking system. As stated by Acting Comptroller Rodney E. Hood, the OCC instead seeks to ensure “appropriate risk management processes for bank activities, [without ...] casting judgment on how a particular activity may fare with public opinion.”

Political and industry participants have claimed reputational risk provides an inappropriate basis for banks to refuse service to legal customers and business entities that either promote disfavored views or operate in legal but criticized industries such as fossil fuels, guns and ammunition, payday lending, and others. Concern with banks’ industrywide refusal to serve clients has been a focus for Congress as well, with the Financial Integrity and Regulation Management Act (FIRM Act) being introduced in both Houses proposing to prohibit reputational risk as a component of financial regulatory supervision.

Bank clients are encouraged to be aware of the shift in regulatory expectations and confirm internal policies, credit and onboarding decisions, and public-facing materials do not suggest a bank’s unwillingness to serve groups. By way of example, a credit policy that affirmatively rejects all businesses operating in the fossil fuel industry in furtherance of climate change initiatives may be inconsistent with regulatory expectations. However, a specific decision to reject a loan sought by a coal or oil company in light of documented expectations that the industry will face declining demand and prices, resulting in the borrower having difficulty repaying the loan, likely aligns with agency expectations.

Fed rescinds guidance on bank crypto-related activities, joining FDIC and OCC. On April 24, 2025, the Federal Reserve announced that it has withdrawn its supervisory letter to the member banks it supervises regarding their participation in crypto-asset activities. The Fed’s 2022 supervisory letter required state member banks to provide advance notice of planned or current crypto-asset activities. Now, banks will no longer have to provide notification. Instead, banks' crypto-asset activities will be monitored “through the normal supervisory process.”

Additionally, the Fed is rescinding its 2023 supervisory letter regarding the supervisory nonobjection process for state member banks to engage in dollar token activities. The Fed’s announcement follows similar recent moves by the other two key federal banking regulators, the FDIC and the OCC, which similarly clarified that banks are permitted to engage in crypto-related activities under the normal supervisory process applicable to other permissible bank activities and are no longer required to receive explicit permission from regulators to do so. FDIC Acting Chairman Travis Hill stated, “I expect this to be one of several steps the FDIC will take to lay out a new approach for how banks can engage in crypto- and blockchain-related activities in accordance with safety and soundness standards.”

CFPB staffing “back and forth.” In mid-April 2025, new leadership at the Consumer Financial Protection Bureau (CFPB) proposed the elimination of roughly 1,500 CFPB staff, seeking to proceed with a staff of approximately 200. Legal staff for the CFPB provided staff with a message that the reductions aligned with plans to "shift resources away from enforcement and supervision that can be done by the States."

A legal filing by the National Treasury Employees Union (NTEU) argued that the mass firings violated a judicial order blocking the Administration’s efforts to wind down the CFPB, resulting in a blocking of those efforts. On April 10, 2025, the appeals court issued a stay partially limiting that prior ruling, giving the Administration flexibility to terminate employees who, after “a particularized assessment,” were determined to be non-essential for CFPB operations. Citing concerns that that process was not followed with the mass firings, the US Circuit Court of Appeals for the District of Columbia, on April 29, 2025, upheld a temporary injunction issued by a federal judge prohibiting the terminations. In response, United States Department of Justice (DOJ) attorneys stated that the CFPB decided to “take the Bureau in a new direction that would perform statutory duties, better align with Administration policy, and right-size the Bureau.” Oral arguments are scheduled for May 16, 2025.

Lawmakers seek CFPB budget cuts in budget reconciliation. On April 30, 2025, the House Financial Services Committee approved the portions under the committee’s jurisdiction of the massive budget reconciliation package currently moving through Congress. The budget reconciliation lays out a framework for President Donald Trump’s major priorities, including tax cuts as well as policy changes on immigration, energy, and other issues. Under the package, Financial Services was tasked with finding $1 billion in savings from the agencies and programs over which it has authority. The committee’s legislation would effectively reduce the amount of funding the CFPB has access to by almost 60 percent. The CFPB’s funding, which comes from the Fed, would be capped at 5 percent of the Fed’s operating expenses for fiscal year 2009. The CFPB's funding mechanism as mandated by the Dodd-Frank Act, which was upheld as constitutional by the Supreme Court in a May 2024 decision, required the Fed to transfer funds to the CFPB up to a maximum of 12 percent of the Fed’s total 2009 operating expenses. The legislation would also require the CFPB to return to the US Treasury’s general fund any civil penalties remaining in the Civil Penalty Fund after victim payments. Additionally, the legislation would eliminate the Public Company Accounting Oversight Board’s authority to independently collect and spend accounting support fees and instead direct that such fees be remitted to the Treasury. The Securities and Exchange Commission (SEC) would continue these responsibilities and further fee collection would be discontinued.

House Financial Services Republicans call for Biden-era regulations to be withdrawn. Republican members of the House Financial Services Committee sent letters to federal agencies requesting the rescission, modification, or re-proposal of a series of financial services regulatory actions taken by the Biden Administration. The committee, in an April 1, 2025 announcement, which includes links to the individual letters, stated, “These rules and guidance lacked proper cost-benefit analysis, would have significant negative economic consequences, and frequently ran afoul of statutorily-mandated procedures intended to ensure well-formulated rulemaking.” The letters were addressed to the Fed Board, the OCC, the FDIC, the CFPB, and the SEC. Committee Republicans also urged the Financial Stability Oversight Council to rescind guidance that made it easier to subject nonbank financial companies to Fed supervision. Instead, the committee stated that the council should take “a holistic approach to any designation process changes that emphasize cost-benefit analysis.”

OCC withdraws climate risk guidance for large banks. On March 31, 2025, the OCC announced that it was withdrawing its participation in the interagency principles for climate-related financial risk management for large financial institutions. The action is broadly consistent with the Trump Administration’s policies on climate and energy issues and represents an effort to focus on what Acting Comptroller Hood has described as OCC’s “core mission.” The OCC’s policy expectation is that all banks will have effective risk management processes commensurate with their size, complexity, and risk profile. “The principles providing guidance to banks for climate-related financial risk are overly burdensome and duplicative,” Hood said, adding that “the OCC’s existing guidance for banks to maintain a sound risk management framework applies to all activities conducted by supervised institutions and includes potential exposures to severe weather events or natural disasters.” The move followed the OCC’s February 2025 announcement that it was withdrawing from the Network of Central Banks and Supervisors for Greening the Financial System. Acting Comptroller Hood said at that time that participation in the initiative “extends well beyond the OCC’s statutory responsibilities and does not align with our regulatory mandate.”

California issues rulemaking for digital financial asset regulation. On April 4, 2025, the California Department of Financial Protection and Innovation published a notice of proposed rulemaking to amend regulations under the Digital Financial Assets Law. The proposed regulations would clarify the licensing process for entities engaging in digital financial asset activities, including exemptions from the Money Transmission Act, application requirements, and procedures for notifying the department of changes. New requirements for entities doing business in California include a regulatory licensing regime, including disclosure of digital financial asset business plans, ownership, and other items; requirements regarding surety bonding and use of electronic Nationwide Multistate Licensing System and Registry filing; and clarifying regulatory language for exemptions related to incidental Money Transmission Act activities. The deadline for submission of written comments on the proposed regulations is May 19, 2025.