Priya Jaiswal is a distinguished voice in the world of global finance, bringing years of seasoned experience in market analysis and portfolio management to the table. As an authority on international business trends, she has watched the ebb and flow of regulatory tides through multiple economic cycles. Today, we sit down with her to discuss a startling report from the Brookings Institution that highlights a significant decline in Federal Reserve enforcement actions. Our conversation delves into the growing disparity between major regulatory bodies, the internal culture shifts at the Fed following major bank failures, and the reality of how political shifts actually impact the oversight of our financial institutions.
The Brookings Institution recently highlighted a striking divergence in how federal agencies approach bank oversight, noting that the Federal Reserve has become significantly less aggressive. How do you interpret the Fed’s decision to cut formal enforcement actions by nearly half since the pandemic began, especially when compared to its peers?
It is truly a jarring shift when you look at the raw data, especially considering the Fed only saw a 16% decline in the number of banks it supervises. While the FDIC and OCC also saw declines in their bank counts—31% and 36% respectively—the Fed’s enforcement activity plummeted far more drastically than the size of its portfolio would suggest. Since 2015, the landscape of the banking industry has transformed as the total number of lenders dropped from 6,182 to 4,336, yet the Fed’s pullback feels disproportionate to this consolidation. We are seeing a move toward what researchers call “substantially laxer enforcement,” which creates a sense of unease for those of us who track market stability. It’s not just a minor dip; it’s a fundamental change in how the central bank chooses to wield its authority during times of economic stress.
The data shows that while the FDIC’s enforcement remained relatively flat and the OCC actually saw a slight increase in actions, the Fed’s numbers dropped from 81 to just 42. What does this tell us about the specific regulatory environment within the Federal Reserve compared to other agencies?
These numbers tell a story of two different worlds existing within the same regulatory framework. Between 2017 and 2019, the three agencies collectively averaged 341 enforcement actions a year, but by the 2023 to 2025 period, that average fell to 263. However, the Fed is the clear outlier here; while the OCC’s actions actually ticked up from 91 to 95, the Fed’s plummeted by more than 58% since the departure of key leaders like Daniel Tarullo in 2017. This suggests that the Fed may be willfully pulling back, either by choosing not to elevate problems to the level of a formal action or simply failing to identify them in the first place. It creates a “ratchet” effect where regulation levels off rather than recovering, leaving a gap in the oversight of bank holding companies and foreign offices that fall under the Fed’s specific purview.
The collapse of Silicon Valley Bank is often cited as a turning point in this discussion. Given the Fed’s own admission that its approach was “too deliberative” and “consensus-driven,” how much of this enforcement decline is a result of a broken internal culture?
The failure of Silicon Valley Bank was a visceral reminder of what happens when supervisors are too slow to move from observation to action. The Fed’s self-review was quite revealing, describing an environment where they were obsessed with accumulating supporting evidence rather than stepping in when the red flags first appeared. This “consensus-driven” culture seems to have permeated the entire supervisory staff, leading to a situation where they are effectively waiting for a fire to become an inferno before reaching for the extinguisher. When you see enforcement actions drop so sharply during the same timeframe that a major regulated entity collapses, it’s hard not to conclude that the Fed’s internal gears are grinding to a halt. There is a fine line between being thorough and being paralyzed, and the data suggests the Fed has crossed into the latter.
There is a concern that new supervisory principles are being introduced that might actually raise the bar for taking action against a bank. Do you believe that giving banks more “deference” to fix their own problems is a viable strategy, or is it an invitation for more systemic risk?
The move toward these new principles is, in my view, one of the most perplexing developments in modern banking regulation. It suggests that examiners should essentially step back and trust a bank’s own conclusion that a problem has been solved, which feels like a dangerous departure from independent oversight. If the bar for enforcement actions is raised even higher, we risk entering an era where the regulator becomes a spectator rather than a referee. This approach ignores the reality that banks, driven by profit and growth, may have blind spots that only an external, rigorous examiner can see. By fostering an environment of “deference,” the Fed might be setting the stage for future failures that could have been easily avoided with a more proactive and skeptical stance.
We often hear that financial regulation is like a pendulum that swings back and forth depending on which political party is in power. How does the “ratchet-level” phenomenon described in the study challenge this common narrative?
The “pendulum” narrative is a comforting simplification, but the data from 2015 to 2025 shows it simply isn’t accurate in this case. Instead of regulation swinging back up under the current administration, we’ve seen the decline that started during the first Trump term merely level off under Biden. This suggests that once the regulatory infrastructure is weakened or the culture of enforcement is dampened, it is incredibly difficult to build that momentum back up. It’s more like a ratchet that only turns one way; the teeth of the gear hold the lower level of enforcement in place even when the political leadership changes. This tells us that the internal culture and the permanent staff at these agencies have a much larger impact on bank safety than the person sitting in the White House.
What is your forecast for the future of bank supervision if the Federal Reserve continues on this path of reduced enforcement?
If the Federal Reserve maintains this current trajectory, I expect we will see a widening gap between the perceived health of the banking system and the underlying reality of its risks. We are likely to witness a period where smaller, localized “cracks” in the system go unaddressed until they coalesce into a more significant crisis that the Fed will be forced to react to, rather than prevent. The lack of formal enforcement actions doesn’t necessarily mean banks are behaving better; it more likely means that the “policeman on the beat” has decided to stop writing tickets. Without a return to a more assertive and less “deliberative” supervisory posture, the probability of another Silicon Valley Bank-style event remains uncomfortably high as the industry continues to consolidate and evolve.
