I’m thrilled to sit down with Priya Jaiswal, a distinguished expert in banking, business, and finance. With her deep knowledge of market analysis, portfolio management, and international business trends, Priya has become a trusted voice in navigating the complex world of financial regulation and policy. Today, we’ll dive into critical topics shaping the banking industry, from redefining regulatory approaches to addressing disparities between banks and credit unions, supporting smaller institutions, and exploring future reforms. We’ll also touch on emerging technologies like stablecoins and their potential impact on the sector. Let’s get started with some thought-provoking insights from Priya.
How do you see the need for a shift in regulatory risk tolerance within banking oversight, and what makes this change so important at this moment?
I believe a shift in regulatory risk tolerance is about striking a better balance between caution and innovation. For too long, regulators have often reacted to crises with blanket rules that can stifle growth, rather than tailoring oversight to real risks. This is crucial now because the financial landscape is evolving rapidly—think fintech, digital currencies, and changing consumer behaviors. If we don’t recalibrate, we risk either over-regulating and hampering smaller players or under-regulating and missing systemic threats. It’s about being proactive, focusing on material risks like safety and soundness, rather than trying to address every possible issue.
Can you explain what a more thoughtful regulatory approach looks like compared to a reactionary one, and perhaps share an example of where this could make a difference?
A thoughtful approach means prioritizing based on data and long-term impact, not just responding to the latest headline. Reactionary regulation often comes after a crisis, like the post-2008 wave of rules that burdened all banks regardless of size or risk profile. A thoughtful strategy would assess, for instance, how a rule impacts a community bank differently from a global giant. Take cybersecurity requirements—rather than mandating the same costly systems for everyone, a thoughtful framework might scale expectations based on a bank’s exposure and resources, ensuring protection without breaking the bank for smaller players.
What are some of the historical regulatory challenges, especially post-financial crisis, that you think need to be revisited or corrected today?
Post-2008, the pendulum swung hard toward over-regulation. The intent was to prevent another meltdown, but the result was a one-size-fits-all mindset that often ignored the nuances of different institutions. Community banks, for example, faced compliance costs that were disproportionate to their risk. There was also a lack of focus—trying to monitor everything meant missing what truly mattered, like the warning signs before some regional bank failures. Today, we need to refine those rules, streamline unnecessary burdens, and sharpen our focus on core issues like financial stability and systemic risks.
You’ve likely come across concerns about an uneven playing field between banks and credit unions. What do you see as the most significant differences creating this imbalance?
The disparity often boils down to regulatory and tax treatment. Credit unions benefit from tax exemptions and lighter regulatory oversight compared to banks, which can allow them to offer more competitive rates or services. Banks, especially community banks, are held to stricter capital requirements and compliance standards, which increase their operating costs. This creates a perception—and sometimes a reality—that credit unions have an unfair edge, especially when competing for the same local customers. It’s a structural issue that needs a hard look to ensure fair competition.
How concerned are you about the possibility of credit unions overtaking community banks, and what measures do you think could help preserve the role of community banking?
I’m quite concerned because community banks play a vital role in local economies, often serving underserved areas where big banks don’t tread. If credit unions continue to grow unchecked due to regulatory advantages, we could lose that personalized, community-focused banking model. To preserve their role, we need targeted relief for community banks—things like reducing compliance costs, simplifying reporting requirements, and ensuring regulators understand their unique challenges. It’s also about leveling the field, perhaps by revisiting how credit unions are regulated or taxed.
What kind of feedback have you received from community bankers about the challenges they face, and how can those concerns be addressed?
Community bankers often tell me they feel crushed by regulatory burdens that don’t match their scale or risk. They’re spending disproportionate time and money on compliance rather than lending or serving customers. Many also worry about competition from fintechs and credit unions. Addressing this means tailoring regulations—exempting smaller banks from rules meant for systemic risks, for instance. It also involves providing clear guidance and resources, so they’re not left guessing how to meet expectations. Direct support, like lower assessment fees, can also ease the financial strain.
Can you describe some specific actions that could ease regulatory pressures on smaller banks, and why those steps matter?
Absolutely. Eliminating non-essential exam requirements is a start—many smaller banks don’t pose systemic risks, so why subject them to the same scrutiny as larger ones? Adjusting fee structures to lower costs for smaller institutions also helps, as does creating dedicated supervisory teams who understand their unique needs. These steps matter because they free up resources—both time and money—that smaller banks can redirect to growth, lending, or community investment. It’s about ensuring they’re not just surviving but thriving.
How does having a dedicated supervision group for community banks change the way their needs are addressed within the broader regulatory framework?
A dedicated group means community banks aren’t just an afterthought in a system often geared toward larger institutions. These specialists can focus on the specific risks and opportunities that smaller banks face, like local economic conditions or limited tech budgets. It allows for more tailored guidance and quicker responses to their concerns, rather than applying broad, generic policies. This kind of focus builds trust and ensures that regulation supports their viability rather than hindering it.
When it comes to emerging technologies like stablecoins, how do you think regulators should approach ensuring smaller banks aren’t left behind?
Stablecoins and other digital innovations are a game-changer, but they can’t be the playground of just the biggest banks with deep pockets for risk management. Regulators need to create accessible frameworks—clear guidelines on how smaller banks can engage with these technologies safely, without needing massive balance sheets. This might mean tiered risk assessments or pilot programs to test the waters. The goal is to avoid a two-tier system where only the giants can innovate, ensuring fair access while still protecting the system from undue risk.
Looking ahead, what are some of the bigger reforms or changes you anticipate in banking regulation, especially for community institutions?
I see a push toward simplification and proportionality as key. For community banks, reforms like a streamlined Community Reinvestment Act evaluation process could reduce paperwork while still holding them accountable to local needs. There’s also room to refine leverage ratios and liquidity rules so they’re not overly punitive for smaller players. Beyond that, I expect more focus on integrating technology—think guidelines for digital payments or partnerships with fintechs—that allow community banks to stay competitive without compromising safety.
What is your forecast for the future of community banking in light of these regulatory shifts and technological advancements?
I’m cautiously optimistic. If regulatory reforms continue to prioritize proportionality and reduce unnecessary burdens, community banks can carve out a strong niche, especially in underserved markets. Technological advancements, if made accessible, could be a boon—imagine community banks leveraging digital tools to offer better services without losing their personal touch. However, the risk of being outpaced by credit unions or fintechs remains if these changes don’t happen fast enough. Their survival hinges on smart, timely policy adjustments and a willingness to adapt to a digital world.
