By James C. Watkins and Richard J. Wolf
An empowered and active new administration is making big adjustments to banking regulations and enforcement policies—so what does that mean for banks as they look ahead at 2026? As former regulators and bank executives with experience working through challenging economic cycles and different administrations, we at Secura/Isaac Group anticipate and know how to adapt to regulatory and enforcement reforms. 2025 brought about sweeping bank regulatory change at an unusually rapid pace and it is important that we understand how these modifications will impact regulation and enforcement this coming year and beyond. While we are excited about several recent regulatory changes, we want to start the year by reminding banks to remain vigilant in the area of risk management.
Recent regulatory initiatives aimed at being more bank-friendly with reduced regulatory burdens are changing many important areas including de novo bank formation, bank mergers, leveraged lending restrictions, proposals to lower community bank leverage ratios, removal of “innovation” gatekeeping task forces, and more relaxed enforcement and oversight policy. At the FDIC, the agency is taking steps that may improve the likelihood of success in ratings appeals for banks through a new independent office to hear appeals from material supervisory recommendations. Other initiatives are allowing banks broader access for FinTech relationships, stable coins, and innovation, and opening the door for more nonbank participation in the marketplace. Banking agencies have adopted new policies seeking to focus on pressing actual financial risks over formalistic documentation or procedural compliance, and taking new approaches to AML/CFT compliance. And, regulators removed reputational risk from supervisory guidance and took strong measures to discourage “debanking” of customers that were operating lawfully.
We welcome these new regulatory approaches and are excited that there may be more paths for opening new banks. Regulatory changes and innovative adaptations are essential to promote a healthy and vibrant banking system. Notwithstanding all the seemingly worthy changes that can come from regulatory reform, we believe that financial institutions still need to continue to strengthen institutional governance, risk management, and controls in what remains a challenging and dynamic economic and risk environment. Market pressures on financial institutions are exacting and opportunities to expand net interest income remains challenging. Incidents of fraud are growing, and banks need effective internal controls to combat new threats from nefarious uses of emerging artificial intelligence technology in sophisticated social engineering schemes and cyber security attacks. Regulators and bankers need to work harder together to spot and address these swiftly emerging risks.
Regulations can at times be overly complicated and unduly burdensome. Streamlining and simplifying regulatory expectations are promising steps forward for the industry. Regulators and their workforce also are changing, and we believe that banks should not be surprised in seeing new faces and less experienced examiners in 2026, as the bank agencies have reduced staff, including the encouraged retirement of career civil servants with valuable institutional knowledge and experience. As a practical matter, we believe regular and stronger open communication with regulators will benefit banks and the financial system, particularly with new leadership across bank regulatory agencies.
However, regulatory reforms should not be viewed as license to encourage banks to be any less attentive to risks. We encourage our bank clients to continue to find ways to improve self-governance, forecast and proactively mitigate known or perceived risks, and institute effective internal and external escalation processes to remain vigilant in promoting safe and sound banking practices. Banks need the ability to take forward-looking measures to mitigate risk and avoid losses. No matter how bank-friendly regulators might be, good underwriting and proactive risk management remain critical to success. While the current regulatory emphasis is moving away from scrutinizing documentation and process, the most successful banks will always have strong internal controls and nimble leadership. Banks should not be complacent and should maintain the resources needed to identify and evaluate emerging risks. Risk management should be a constant, ongoing process, no matter how much noise and change takes place in Washington, D.C.
All these changes remind us about the importance of building teams who understand how regulatory agencies work, how regulatory changes will affect banks, and how to manage risk effectively, regardless of what is required and actively enforced. With senior regulators leaving government agencies, taking decades of experience away with them, banks must compensate with extra preparation and expertise on their end.
James C. Watkins is President and Richard J. Wolf is Managing Director of the Secura/Isaac Group.