What are the four primary regulatory challenges facing community banks in 2025 and 2026?

Deloitte's 2025 Banking Regulatory Outlook identifies four critical challenges. First, navigating an uncertain regulatory environment: administration changes, congressional control shifts, and new agency leadership create a regulatory pendulum requiring consistent governance regardless of current enforcement emphasis — the pendulum can swing back within a few years. Second, managing issue remediation: subsequent examinations typically begin by reviewing previously identified deficiencies, and failure to demonstrate sustainable remediation can lead to extended regulatory scrutiny even for minor findings. Third, reevaluating liquidity risk frameworks: regulators are considering policy options affecting liquidity requirements including restrictions on held-to-maturity assets in liquidity buffers and changes to uninsured deposit treatment, requiring community banks to reassess intraday liquidity capabilities and contingency funding plan readiness. Fourth, monitoring nonfinancial risks: regulators are focusing on operational resilience and cybersecurity, evolving financial crime and fraud typologies, third-party relationships, and AI integration within risk management frameworks.

Why is issue remediation so important in subsequent bank examinations?

Issue remediation is typically the first focus in subsequent examinations regardless of whether the finding is material — whether examiners originally identified significant deficiencies or relatively benign issues, the following examination usually begins by reviewing remediation progress. This means community banks cannot prioritize remediation based on finding severity alone; all examiner findings require demonstrable, sustainable correction. Current regulatory leadership has asserted that existing examination and appeals processes have been stacked against banks, with a stated goal of reprioritizing supervision on proven principles while giving banks more discretion in business decisions. Despite this more favorable posture, banks are still expected to close outstanding issues and enforcement actions, as new administrations do not automatically close existing supervisory findings — internal procedures and protocols must be followed.

What nonfinancial risks are bank regulators currently focused on?

Bank regulators are focusing on several key nonfinancial risk categories where the industry may still need improvement. Operational resilience and cybersecurity: regulators emphasize around-the-clock monitoring and response capabilities, with stricter compliance requirements to protect consumer data adding pressure. Evolving financial crime and fraud typologies: as criminal techniques and technology-enabled fraud methods evolve, banks must continuously update their detection and response capabilities rather than relying on static controls. Third-party relationships: regulators are scrutinizing how banks manage risks from core service providers and other essential third parties, including technology vendors. Artificial intelligence: banks must consider how AI fits within their risk management frameworks as adoption accelerates. These nonfinancial risks require dynamic, continuously updated compliance and monitoring capabilities — not just point-in-time assessments — to satisfy examiner expectations.

How does Qredible's Q-Trust help community banks manage regulatory compliance documentation?

Q-Trust provides community banks with a comprehensive compliance documentation system that adapts to changing regulatory priorities — directly addressing the challenge of maintaining consistent governance standards across the regulatory pendulum's swings. For merchant portfolio management, Q-Trust provides a blockchain-anchored registry of business credentials, compliance documentation, and product-level compliance data for high-risk merchants, enabling banks to demonstrate verifiable KYB compliance during examinations rather than relying on manual documentation that may be incomplete or difficult to retrieve. Q-Audit's continuous monitoring ensures that compliance status is always current — critical for issue remediation tracking, where examiners expect to see sustained improvement rather than point-in-time corrections. For community banks serving CBD, hemp, nutraceutical, and other high-risk merchants, Q-Trust provides the automated compliance monitoring and documentation infrastructure that satisfies examiner expectations for ongoing oversight of merchant portfolios without the manual overhead that makes compliance cost-prohibitive for smaller institutions.

Four Critical Regulatory Challenges Facing Community Banks

Q: How should community banks approach compliance in a deregulatory environment?

Community banks face a fundamental tension in deregulatory environments: the current posture reduces immediate enforcement pressure, but banking leaders must resist the temptation to relax standards based on assumptions that old rules no longer apply. The regulatory pendulum can swing again within a few years, making sustained compliance essential regardless of current enforcement priorities. Banks must comply with existing laws and regulations while simultaneously staying aware of changing enforcement priorities and shifting examination emphasis. The biggest uncertainty surrounds rules from previous administrations — particularly Dodd-Frank Sections 1071 and 1033 — which still don't require compliance as the current administration attempts to invalidate previous rulemaking. Community banks can help focus regulators on specific risks of their institutions, including identifying policies that impede their ability to serve local clients, while maintaining communication lines with regulators.

Four Critical Regulatory Challenges Facing Community Banks

Category: Business Learning Center News

Author: Joy

Date: December 11, 2025

The banking industry faces a dynamic regulatory environment shaped by changes in administration, shifts in congressional control, and new agency leadership. While deregulatory efforts and potential rollbacks of previous administrations' rules create opportunities, community banks must remember that changes to banking supervision occur slowly and fundamental compliance obligations remain constant.

Deloitte's 2025 Banking Regulatory Outlook identifies four key challenges facing community banks as they adapt to evolving priorities while maintaining focus on governance, risk management, compliance, and controls. Understanding these challenges helps institutions avoid extended regulatory scrutiny while positioning themselves for sustainable growth.

Navigating Regulatory Uncertainty

Banks face an increasingly complex and uncertain regulatory future requiring heightened vigilance and adaptability for strategic planning and compliance. The considerable difference in regulatory direction between administrations means institutions must closely monitor developments and invest in regulatory change management capabilities.

The current environment emphasizes deregulation, creating optimism for more regulatory certainty and straightforward reforms. The confirmation of Federal Reserve Board Governor Michelle Bowman as vice chair for supervision brings community banking experience to a critical oversight role, providing leadership with a keen understanding of challenges facing smaller institutions.

However, when administrations shift their regulatory approaches significantly, banking leaders must resist the temptation to relax standards based on assumptions that old rules no longer apply. The regulatory pendulum can swing again within a few years, making sustained compliance essential regardless of current enforcement priorities.

Community banks must comply with existing laws and regulations while simultaneously staying aware of changing enforcement priorities and shifting examination emphasis. The biggest uncertainty surrounds rules from previous administrations, particularly Sections 1071 and 1033 from the Dodd-Frank Act, which still don't require compliance as the current administration attempts to invalidate previous rulemaking through courts or legislation.

The Congressional Review Act has enabled Congress to overturn specific recent rules, including the OCC's merger review rules and the CFPB's overdraft services rule. Bank regulators are also revising or rescinding proposed rules, with the FDIC withdrawing its brokered-deposit and corporate governance proposals, while multiple agencies propose repealing the 2023 Community Reinvestment Act final rule.

Addressing Supervisory Focus on Issue Remediation

Despite administration changes, banks are expected to close outstanding issues and enforcement actions while improving or sustaining risk management and controls. New administrations do not automatically close existing supervisory findings or enforcement actions, as internal procedures and protocols must be followed.

Examiners are increasingly focusing on issues posing the greatest risks to bank safety and soundness rather than on minor technical matters with minimal impact. This allows community banks to spend less time on immaterial issues that aren't relevant to their operations, representing a significant benefit.

Issue remediation is typically the first focus in subsequent examinations, regardless of whether the finding is material. Whether examiners identify significant deficiencies or relatively benign issues, the following examination usually begins by reviewing remediation progress.

Current regulatory leadership has asserted that existing examination and appeals processes are stacked against banks, with regulators losing focus on factors that actually affect banking safety and soundness. The goal is reprioritizing bank regulation and supervision on proven principles while giving banks more discretion in business decisions.

One positive change involves removal by the OCC and Federal Reserve Board of reputational risk as a factor in CAMELS ratings. This represents significant improvement since reputational risk has functioned as a poorly-defined catchall leaving banks vulnerable to overzealous examiners exercising broad discretion.

Establishing Financial Resilience

Supervisors are closely examining banks' financial vulnerabilities and their ability to respond appropriately to changing economic conditions. The current administration is likely to focus on balancing core financial resilience within the banking system while promoting financial market growth, with new leadership at the banking agency and upcoming financial standards changes having significant implications for capital costs and liquidity.

Regulators are taking a particularly close look at liquidity following previous stress events. Commentary has focused on reevaluating current liquidity risk frameworks, with supervisors concentrating on banks' intraday liquidity risk capabilities, operational readiness of contingency funding plans, and requisite controls and risk management practices.

Regulators are considering policy options that could significantly affect liquidity requirements, including restricting banks' reliance on held-to-maturity assets in liquidity buffers and changing the treatment of certain deposit types, such as uninsured deposits, in current liquidity frameworks.

Community banks have weathered numerous storms, including banking and financial crises, inflation, and market uncertainty. Unlike larger publicly traded banks beholden to quarterly earnings reports, community banks typically run with excess capital. Their operation in local markets also bolsters resilience.

Managing Nonfinancial Risks and Internal Controls

Regulators continue focusing on several key nonfinancial risks where the banking industry may still need improvement, including operational resilience and cybersecurity, evolving financial crime and fraud typologies, and third-party relationships. Banks must also consider the development of artificial intelligence and how it fits within their risk management frameworks.

Many community banks maintain patchwork legacy systems while cyber threats continue to evolve and become more sophisticated. Increased complexity creates a greater need to develop, support, and document adequate internal controls guarding against these risks.

Risks may be exacerbated by outsourcing to third-party service providers helping deliver and monitor core operations. Regulators are focusing more on connection points between banks and service providers while emphasizing the importance of third-party risk management processes.

AI risks have prompted significant regulatory attention. While AI offers the potential to improve efficiency and reduce costs, it may also amplify traditional risks and require banks to incorporate new technologies into their risk management frameworks.

Quality Management Through Regulatory Transitions

Community banks must keep communication lines open with regulators while helping them focus on desired changes specifically impacting smaller institutions. As regulators revisit examination procedures, community banks can help focus them on specific risks of their institutions, including identifying policies that impede their ability to serve local clients.

Need comprehensive compliance documentation systems that adapt to changing regulatory priorities? Contact Qredible to learn how Q-Trust can help your community bank maintain quality management and demonstrate regulatory compliance across multiple frameworks.