Why Massive Changes in Banking Demand Supervision and Regulation
By Virginia Varela, Head of Banking Strategy at Upgrade
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Executive Summary
- Gutting the Consumer Financial Protection Bureau, chopping back regulatory staff at other agencies, and tinkering with federal bank regulatory structure have marked the Trump administration’s strategy, with more likely to come.
- At the same time, major new initiatives in complex areas like AI and cryptocurrency are raising the stakes for the industry and the country.
- In times like this, Washington should be building up a talented cadre of regulators, rather than taking away the guardrails, says a veteran regulator, banker and fintech executive.
As we stand at the crossroads of technological transformation in financial services — AI, open banking, crypto innovation, embedded finance, real-time payments, agentic commerce and more — a question we need to ask as a country is:
Are our federal financial regulators adequately staffed and prepared for what’s next?
Over nearly four decades I have been a regulator, a banker, an executive of a fintech-turned-bank, and now a fintech executive.
I’ve seen this business from all sides. I’m concerned about what I see going on in Washington.
Regulatory Agencies Aren’t Businesses. Period.
Applying the same logic used to trim and streamline private businesses may have appeal at some levels, but this concept fails to account for a critical factor: Profit-oriented financial institutions are fundamentally different than federal agencies.
Financial institutions’ core mission is to generate returns for shareholders. That means they prioritize growth, innovation and competitiveness. Sometimes this pushes them to take on riskier ventures or pursue short-term profits aggressively. Many value customer trust and long-term stability, but those goals can clash with market pressures for growth and profit.
By contrast, government banking agencies are designed as guardrails for the financial system. Their north star isn’t profit — it’s public interest, consumer protection and systemic risk management. Agencies like the FDIC or the Federal Reserve focus on keeping banks solvent, ensuring fair practices and shielding the public from fallout during financial shocks.
Have we already forgotten the events of Financial Crisis? The bank closures of early 2023? The concerns about public confidence in the financial system?
Throughout my career in banking and fintech, I had a front-row seat. I saw the caliber of people who work in regulatory agencies. Contrary to what some may assume, there was minimal fluff or excess. What I saw were competent, experienced and deeply committed professionals — policy experts, examiners and application analysts — working hard to ensure our banking system remains safe, fair and competitive.
That’s why I find the deep staffing cuts ordered by the Trump administration concerning. Regulatory oversight isn’t bureaucracy for bureaucracy’s sake. It’s a form of risk mitigation for consumers, businesses and the broader financial system.
Read more: Is the Policy Pendulum in D.C. Swinging in Banks’ Favor?
Federal Banking Supervisory Jobs Are Being Eliminated
The Trump administration, through the Department of Government Efficiency (DOGE), is eliminating bank examiner and supervisory positions, with additional major structural changes underway that could significantly reduce their roles.
Rumors continue to hold that the Trump administration may be considering some form of agency consolidation, including proposals to fold the FDIC into the Treasury Department or merge it with the Comptroller’s Office. There’s also talk of a complete dismantling of the already gutted Consumer Financial Protection Bureau. The policy direction suggests a significant reduction in supervisory staff across agencies.
If these changes go through, the banking landscape could look very different — leaner on enforcement, heavier on “self-regulation.”
In fact, now may be the time to expand, not shrink, our bank supervisory resources with experienced, trained, innovative and thoughtful staff.
We Should Be Beefing Up Regulatory Agencies, Not Slimming Them Down
Industry evolution and aggressive action on Capitol Hill have hastened the pace of change in financial services. Consider these developments:
• AI and other automation are transforming lending, underwriting, fraud detection and customer service — but also introducing opaque algorithms and risks of systemic bias.
• Crypto and other digital assets are forcing us to rethink definitions of value, custody and consumer protection.
• Open banking and APIs (application programming interfaces) are dismantling traditional data silos and empowering consumers — but also raising new questions about data rights and operational security.
•Fintech-bank partnerships are accelerating, blurring the line between tech firms and chartered institutions.
• New bank charter applications are on the rise, requiring specialized review and oversight, especially from application analysts and legal experts. New institutions that take deposits will also need permission to have federal deposit insurance.
I was personally involved in the application process for fintech SoFi Technologies, Inc. to acquire Golden Pacific Bank, where I served as CEO. What stood out was the essential role of the applications department at the federal level in the process. These aren’t simply paper pushers — they are subject matter experts who understand the complexities of modern financial models.
In an era where regulators are expected to address faster-moving and more complex issues than ever before, we should be asking:
Do they have the necessary tools, talent and capacity to keep up?
Read more: Banks Lost $3 Trillion to Fintechs in the Last Five Years. Blame the Primacy Myth
Could U.S. Regulators Rebuild When Faced with an Urgency?
It takes a great deal of time and resources to train a federal bank regulator.
Training a federal bank regulator is a rigorous, multi-year process designed to build deep financial and legal expertise. Regulators typically begin with a structured program that lasts one to two years — covering everything from risk management to consumer protection. As they progress, they move into specialized tracks like IT security or large institution oversight, which can extend their training to three years or more.
But the learning never really stops. Because the financial landscape evolves constantly, regulators engage in continuous education — taking courses, attending seminars and earning certifications to stay sharp on emerging risks like cyber threats and crypto markets. Their training is also globally respected, with U.S. regulators often advising international counterparts.
So while profit-driven firms chase returns, regulators spend years sharpening tools to protect the public, steer clear of crises and uphold trust in the financial system.
Most bankers generally prefer examiners who are highly trained and experienced because they bring practical understanding and balanced judgment to complex situations.
When regulators understand the ins and outs of banking operations, they’re better equipped to offer fair, accurate assessments — and more likely to engage in constructive, solutions-oriented conversations. That depth of expertise builds trust, helping regulators serve as thoughtful allies in maintaining financial stability rather than just rule enforcers.
I believe that strong, well-resourced bank supervision isn’t a hindrance to innovation. It’s a foundation for it. A trusted and transparent regulatory environment gives businesses the confidence to build and consumers the confidence to engage.
Let’s invest accordingly.
Also by Virginia Varela: Will Fintechs Overtake Banks? Five Lessons from Fintech-Bank Mergers
