2025 Bank Policy Predictions: Another Swing of the Political Pendulum

The Congressional Review Act will be used as a record amount in 2025

In 1996, Congress enacted the Congressional Review Act (CRA) to ensure an adequate period of congressional review of rules enacted, particularly when it's late in a presidential term. Its application has been limited to a short period following Presidential elections, and only when there is a change in administration and the same party in the White House controls the resulting Congress. As a result, the CRA has only been used to "disapprove" (i.e., repeal) regulations from the previous administration 20 times in 28 years. The most active use of the Congressional Review Act was in 2016, the beginning of the Trump administration, when 16 agency regulations, issued late in President Obama's second term, were repealed by a simple majority vote of Congress and a signature from President Trump. In 2025, I foresee the CRA being used dozens of times to repeal regulations issued at the end of the Biden administration. For banks, several recently issued regulations, including several by the Consumer Financial Protection Bureau (Open Banking, Overdraft, and the Medical Debt final rule which is expected to be issued before Inauguration Day) will likely see CRA action.

Basel III endgame re-proposal will not become final in the year ahead

In July 2023, the Federal Reserve, OCC, and FDIC issued a comprehensive proposal known as Basel III endgame to overhaul the methods by which large banking organizations must calculate risk-based capital requirements. The Basel III proposal would have materially increased the current capital requirements for banking organizations with $100 billion or more in total consolidated assets. Reactions to the Basel III proposal were overwhelmingly negative and came from a broad group of constituencies. In the fall of 2024, Federal Reserve leaders indicated that the rule would be re-proposed and outlined a set of proposed changes. As we head into 2025, the Basel III re-proposal remains a top issue for banks. The change in administration will likely delay the issuance of a re-proposal until after new leadership at FDIC, and OCC are in place. As a result, we can expect a new proposed rule sometime in 2025, but I think a final rule will not be issued until 2026.

Comprehensive AI regulation will be led by states adopting Colorado-like legislation

With a lighter regulatory agenda at the federal level, it is expected that in many areas, including AI regulation, the action will shift to the states. While state legislatures enacted more than 100 AI-related laws in 2024 addressing such issues as deep fake, digital replicas, and generative AI, Colorado became the first state to enact comprehensive AI consumer protection legislation. As the new administration focuses on promoting an aggressive innovation agenda, including AI, several states are expected to quickly fill in the gaps by pursuing AI legislation that provides rules of the road governing such issues as high-risk AI systems. I expect at least one state will follow Colorado's lead and adopt comprehensive AI consumer protections in 2025.

A majority of states will have comprehensive privacy laws by the end of the year

While Congress continues to struggle to find consensus around federal privacy legislation, states have accelerated their passage of comprehensive privacy bills. In the past two legislative sessions, 14 states have adopted new comprehensive privacy laws. I believe this trend will continue in 2025, concluding with the total number of states having adopted extensive privacy legislation reaching at least 26 by year's end. States like California are opposed to a weaker federal bill and the more states that have skin in the game, the less likely Congress will be able to adopt a single, nationwide privacy law.

The swings of the political pendulum are occurring more frequently

For many in the business community, the change in approach to federal regulation is a welcome relief. However, the swings of the political pendulum are occurring more frequently, an indication of the increasingly polarized political environment. These shifts mean the current policy landscape is likely to change in a few short years. Until then, at least at the federal level, banks will have time to catch their breath as the legislative and regulatory pace slows. This pause offers a strategic window for financial institutions to explore, reassess and refine regulatory compliance strategies, ensuring they are well-positioned for the next wave of legislative reforms that are sure to come.