Trump unleashes biggest financial deregulation since 2018, scrapping Basel III and bank merger rules

Basel III Endgame was the final piece of the international capital standards framework developed after the 2008 financial crisis to ensure the world's largest banks held enough loss-absorbing capital to survive a severe downturn without government bailouts. The Biden-era Federal Reserve proposed rules in July 2023 that would have required U.S. banks with $100 billion or more in assets to increase their capital requirements by approximately 9% on average. By late 2024, with opposition mounting, the Biden Fed had already scaled back that proposal to roughly 0.5% capital increase for the largest banks. After Trump's inauguration, the Basel III Endgame proposal was effectively shelved — Federal Reserve Vice Chair for Supervision Michelle Bowman, confirmed in early 2025, stated she was reviewing the framework with no timeline for finalization. With banks already holding an estimated $200 billion in excess capital above existing requirements, the practical effect was that capital buffers that would have been built under Basel III will not be required.

The Federal Reserve's annual stress tests — the post-Dodd-Frank mechanism requiring the 33 largest banks to demonstrate they can survive a severe hypothetical recession — were made less severe in their 2025 and 2026 iterations. On June 27, 2025, the Fed released stress test results showing that under its revised scenarios, the required capital buffers for the largest banks (their Stress Capital Buffers, or SCBs) would be lower than under comparable prior-year tests. The Fed also announced it was considering changes to the Global Systemically Important Bank (GSIB) surcharge — additional capital requirements imposed on the eight banks whose failure would pose systemic risk to the broader financial system. JPMorgan estimated that combined Basel III finalization, GSIB surcharge reductions, and stress test changes could collectively release $650–$750 billion in excess capital for the largest banks over Trump's four-year term — capital that could be deployed in share buybacks, dividends, or lending.

The FDIC, under Acting Chair THTravis Hill — installed on Trump's first day after predecessor MGMartin Gruenberg resigned — moved immediately on bank mergers. In March 2025, the FDIC rescinded its September 2024 merger policy statement, which had introduced expanded scrutiny of large bank mergers under the bank merger statutes and required evaluation of financial stability, community impact, and potential competitive harm. Hill replaced it with a policy reverting to the standards in place before Gruenberg's expansion, directing examiners to approve mergers that satisfy statutory requirements 'in a timely way.' The first major beneficiary: the $35 billion Capital One–Discover merger was approved, creating the largest credit card issuer by purchase volume in the United States. An $8.6 billion Pinnacle Financial–Synovus merger was also proposed in 2025. Bank M&A volume surged — just 32 deals with $16.2 billion in value had occurred in all of 2024.

The OCC and FDIC jointly proposed eliminating 'reputational risk' as a basis for supervisory enforcement actions — a targeted rollback of what conservatives called 'Operation Chokepoint,' the Obama-era DOJ initiative directing banks to terminate accounts with businesses the government disfavored, including payday lenders, gun dealers, and certain cryptocurrency companies. Under reputational risk standards, regulators could downgrade a bank's supervisory rating if it maintained relationships with clients perceived as reputationally problematic. The new proposal would restrict enforcement to 'material financial risks' and violations of law. The Fed separately announced reputational risk would no longer factor into its bank supervision program. Senate Banking Chairman Tim Scott introduced the FIRM Act to codify the prohibition legislatively. OCC Acting Comptroller RHRodney Hood also announced the agency would scrutinize past bank behavior for 'politically or unlawfully motivated debanking' when reviewing merger applications.

The Federal Reserve also proposed changes to the Community Reinvestment Act — the 1977 law requiring banks to meet the credit needs of the communities they serve, including low- and moderate-income neighborhoods. The Biden FDIC, OCC, and Fed had finalized a comprehensive CRA update in 2023 that significantly expanded what counted as meeting CRA obligations, including online and mobile banking activity. The Trump agencies published a proposal in July 2025 to rescind the 2023 revision and revert to the prior framework, which industry groups argued was more administrable and less costly. Critics including the National Community Reinvestment Coalition warned the rollback would reduce lending to low-income borrowers and communities of color who relied on CRA obligations to access credit.

The CFPB under the Trump administration dismissed or paused dozens of enforcement actions and rulemakings initiated under Biden-era Director Rohit Chopra. Chopra was fired on Feb. 1, 2025 — one day after Trump's inauguration. Acting director RVRussell Vought issued a stop-work order on Feb. 7, closed headquarters, and refused the Bureau's next $711.6 million Federal Reserve funding draw. A court subsequently required partial operations to resume. By mid-2025, the CFPB had moved to rescind the Biden-era rule limiting overdraft fees (which would have capped them at $5 for most banks), the rule limiting credit card late fees to $8 (which had been blocked by a federal district court), and multiple payday lending enforcement actions. House Financial Services passed a bill reducing CFPB's statutory funding cap from 12% to 5% of Fed operating expenses — a 60% budget cut.

The Trump administration's deregulatory approach drew a clear split between Wall Street and Main Street. The largest banks — JPMorgan Chase, Bank of America, Goldman Sachs, Citigroup, Wells Fargo — stood to benefit most from Basel III abandonment, stress test relaxation, GSIB surcharge reduction, and merger approval. Community banks had more mixed reactions: while the elimination of Basel III capital requirements affected only banks over $100 billion, community banks supported the merger policy rollback and CRA simplification but expressed concern about competition from megabank consolidation. Consumer advocacy groups warned that CFPB enforcement collapse would expose low-income borrowers to predatory practices that the Bureau had previously constrained — a harm concentrated among the most financially vulnerable Americans.

The financial deregulation of 2025 occurred against the backdrop of the banking sector's 2023 stress test — the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank, which together represented the second, third, and fourth largest bank failures in U.S. history. Those failures had been caused not by the traditional credit risk that Basel capital rules address but by interest rate risk and liquidity mismanagement — a category the Trump administration's deregulatory agenda did not specifically target. Critics argued that abandoning Basel III in response to the 2023 failures was particularly poorly timed, as those failures demonstrated that large banks remained vulnerable to non-credit shocks. Supporters argued the 2023 failures were regional bank-specific and that the proposed Basel III increases were disproportionate to the actual risk.