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Banking Regulation

Every Crypto Coin Show story tagged Banking Regulation, newest first, alongside the guides and interviews that give it context.

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From the interview archive
Wall Street pushes Kevin Warsh to future-proof lighter Fed Rules
Institutional

Wall Street pushes Kevin Warsh to future-proof lighter Fed Rules

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InstitutionalMay 26, 2026·5 min read

Wall Street is urging Federal Reserve leadership to embed lighter bank supervision into formal legal rules that would survive a future Democratic administration, signaling institutional concern that deregulatory gains under Trump could be reversed. The push reveals a structural tension: banks want permanent relief from examination intensity, but regulators need the flexibility to tighten oversight during crises.

  • Four people familiar with private talks say lenders are pressing the Fed to give new supervisory processes firmer legal backing against future political reversal.
  • Fed Vice Chair Michelle Bowman is leading an overhaul that includes cutting supervision staff by roughly 30% and reducing the frequency and scope of bank examinations.
  • Institutional investors must assess whether lighter, legally codified rules improve bank lending and capital formation or create systemic vulnerabilities ahead of the next downturn.
  • 30% Planned reduction in Federal Reserve regulation and supervision staff under current overhaul
  • MRAs Private examination warnings system that Wall Street wants replaced with softer, legally codified supervisory framework
  • 2008 Last financial crisis prompting current regulatory landscape that Trump administration is actively reshaping

Wall Street banks are making a direct institutional play to lock in lighter regulation by asking the Federal Reserve to anchor new supervisory processes in formal legal rules rather than informal guidance.

Four people familiar with confidential discussions told media outlets that lenders are pressing Fed officials to give the emerging supervisory system firmer statutory footing, making it legally harder for a future administration to dismantle.

The core concern is practical: absent legal codification, a Democratic Fed could revert to stricter examination regimes within months, erasing years of accumulated relief. This represents a shift in how Wall Street typically operates, rather than lobby for case-by-case flexibility, major banks now want durable, rule-bound deregulation that transcends political cycles.

Bowman’s 30% Staff Cut and Shift Away From MRA Warnings

Michelle Bowman, the Federal Reserve’s Vice Chair for Supervision, is orchestrating one of the most aggressive supervisory overhauls since the 2008 financial crisis.

Under her leadership, the Fed has proposed eliminating Matters Requiring Attention (MRAs), the private, confidential examination warnings that examiners have issued to banks for decades when they identify operational, compliance, or risk management problems. MRAs carry no public stigma; they are internal notices requiring banks to remediate issues or face potential enforcement action.

However, lenders have long viewed them as burdensome, arguing that the examination process prioritizes trivial compliance technicalities over substantive risk management.

To accelerate this shift, Bowman has announced plans to cut Federal Reserve supervision and regulation staff by approximately 30%, representing a substantial reduction in the agency’s capacity to conduct deep examinations and ongoing monitoring. The cuts have prompted departures among long-serving career examiners while creating space for new hires aligned with a lighter-touch philosophy.

The administration has justified this staffing reduction on efficiency grounds, contending that examiners spend excessive time on “foot faults” rather than concentrating on material risks to bank safety and soundness.

Todd Baker, senior fellow at Columbia University’s Richman Center for Business, Law and Public Policy, characterized the effort plainly: Bowman is “attempting to alter the supervisory culture of the Fed and to shift the power balance … in favor of bank management.” This candid assessment reflects the directional clarity of the overhaul, it is explicitly designed to reduce friction between regulators and banks, not merely to improve efficiency.

Wall Street’s Bid to Legally Enshrine Softer Rules Against Future Reversals

The conversation between Wall Street and Fed leadership has moved beyond requests for lighter day-to-day supervision. Banks now want the Fed to translate the emerging softer framework into formal legal rules, complete with statutory or regulatory backing that would make it difficult or impossible for a successor administration to reverse course.

This demand reflects institutional anxiety that political volatility in Washington could wipe out regulatory gains faster than they can be secured.

Banks argue that legal codification serves a practical purpose: it allows large financial institutions to plan capital allocation, hiring, technology investment, and business strategy over multiyear horizons without fear of sudden regulatory whipsaw.

A bank that reduces compliance staffing in response to softer MRA treatment today cannot easily rehire and retrain those teams if examination intensity spikes in 2029. From a banking perspective, durable rules provide the certainty required to deploy capital efficiently and extend credit to borrowers.

However, this request creates a regulatory paradox. Formal, legally binding rules sacrifice the very flexibility that regulators value during financial stress. The 2008 crisis illustrated why the Fed needs discretionary supervisory authority, examiners must tighten oversight rapidly when economic conditions deteriorate or new risks emerge.

If lighter supervision is locked into law, reversing it during a credit freeze or asset bubble becomes politically and procedurally difficult, potentially constraining regulators’ ability to act decisively.

Kevin Warsh’s Appointment and Accelerating Deregulatory Timeline

Kevin Warsh’s appointment as Federal Reserve Chair under the Trump administration has intensified expectations among bankers that the supervisory overhaul will accelerate. Warsh, a former Fed governor and longtime financial market participant, is known for favoring market-based solutions over prescriptive regulation.

Banking industry participants widely expect him to move faster and further than Bowman alone might achieve, particularly on items requiring Fed Board approval or interagency coordination.

The timing matters significantly for institutional investors assessing regulatory risk. The Fed’s Board will vote on major supervisory changes over the coming months, including potential revisions to the confidential rating system banks receive during examinations.

These rating downgrades can trigger enhanced capital requirements and examination frequency, so any formal loosening could materially improve bank profitability and capital flexibility.

Trump’s administration has publicly justified lighter supervision as a tool for expanding lending and supporting economic growth. A White House spokesperson framed the policy shift in terms of “objective and measurable risks” to financial markets, suggesting the government will maintain guardrails against tail risks while eliminating redundant or outdated rules.

This messaging may help secure political cover if a future crisis forces a rapid tightening, though it remains unclear whether courts would uphold emergency regulatory action that reverses formally codified lighter rules.

What Institutional Investors Should Monitor in Coming Months

The outcome of Wall Street’s push for legally durable lighter rules will determine the medium-term competitive landscape for banking.

If the Fed moves rules into formal regulatory text, banks can confidently reduce compliance costs and extend risky credit with fewer examination headaches, a scenario favorable to bank equity valuations but potentially concerning to fixed-income investors and prudential regulators.

If Bowman and Warsh instead proceed through informal guidance and internal policy shifts, the entire framework remains vulnerable to sudden reversal, leaving banks in regulatory limbo.

Institutional asset managers and fixed-income investors should closely monitor whether the Fed proposes formal amendments to its supervisory regulations versus simply changing internal examination procedures. Formal rule amendments trigger notice-and-comment rulemaking, creating a public record and Democratic opposition; informal guidance changes can proceed quickly but leave weaker legal footing.

The Fed’s choice of mechanism will signal whether it intends a permanent realignment or a temporary accommodation likely to reverse after 2028.

Watch for the Fed’s formal proposal on supervisory rating methodologies and MRA replacement procedures, expected over the coming quarters. Kevin Warsh’s stated priorities for his first ninety days as Chair will indicate how aggressively the Board intends to advance legally binding deregulation, and whether Democrats on the Board will force a compromise that preserves some examination authority during downturns.

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The Fed is building competition for XRP’s core payments use case into the FedNow banking system
Institutional

The Fed is building competition for XRP’s core payments use case into the FedNow banking system

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Regulation & PolicyApril 13, 2026·6 min read

The Federal Reserve’s April 8 proposal to allow U.S. banks to use intermediaries through FedNow for cross-border payments directly targets the operational niche XRP has positioned itself to fill, forcing institutional investors to reassess whether crypto bridge assets retain competitive moats as legacy payment systems upgrade their own infrastructure. The move signals that traditional banking rails, armed with regulatory standing and existing correspondent relationships, may solve the friction in international transfers faster than decentralized alternatives, potentially eroding XRP’s core utility narrative.

  • Fed proposed April 8 allowing banks to use intermediaries via FedNow for cross-border payments, directly competing with XRP’s stated use case.
  • Ripple markets XRP with three-to-five second settlement and sub-cent transaction costs as cross-border payment infrastructure.
  • Swift reports 25+ banks committed to its new payment framework by June, creating parallel competitive pressure on crypto bridge assets.
  • 3-5 sec XRP settlement speed advertised by Ripple versus traditional correspondent banking timelines
  • 25+ Banks committed to Swift’s new payment framework versus legacy correspondent banking model
  • April 8 Date Fed proposed FedNow intermediary rules, marking regulatory shift toward payments competition

XRP’s investment thesis has rested on solving a genuine problem: international payments remain slow, expensive, and operationally fragmented despite decades of technological progress. The asset entered the market as a bridge currency designed to reduce idle pre-funded capital requirements and settle cross-border transactions in seconds rather than days.

Ripple’s marketing positioned XRP as neutral infrastructure that banks could adopt without replacing their existing correspondent networks, and the XRPL’s decentralized exchange framing added technical legitimacy to the payments pitch.

This narrative held particular force because it addressed a pain point that transcends crypto enthusiasts, ordinary users understand the frustration of waiting for international transfers, absorbing opaque FX markups, and navigating cut-off times.

That utility case now faces pressure from an unexpected direction. On April 8, the Federal Reserve published proposed rules allowing U.S. banks and credit unions to route cross-border payments through intermediaries via the FedNow Service, the Fed’s real-time payments network launched in 2023.

The regulatory language is narrow but strategically significant: banks could use a correspondent bank for the international leg of a transaction while routing the domestic U.S. portion through FedNow. This architecture directly mirrors the operational problem XRP was built to solve, moving money across borders with minimal delay and friction.

The difference is that the Fed’s solution operates within the regulated banking stack, bypassing the need for a neutral bridge asset altogether.

Fed’s FedNow Intermediary Proposal Reaches Directly Into XRP’s Operational Niche

The structural advantage of the Fed’s approach lies not in technical innovation but in incumbent positioning. Banks already maintain correspondent relationships across borders; they hold regulatory standing that crypto assets cannot claim; they have direct access to domestic settlement infrastructure and central bank liquidity.

When FedNow adds the ability to coordinate cross-border flows through intermediaries, it removes a key friction point without requiring banks to adopt a new asset or trust model.

For a bank deciding between routing payments through XRP or through an upgraded FedNow corridor with a correspondent partner, the choice simplifies to institutional comfort and operational familiarity, both of which favor the legacy system.

This regulatory shift arrives at a moment when XRP’s competitive moat was already narrowing. The asset has survived years of regulatory scrutiny, including a lengthy SEC enforcement action that created legal uncertainty but ultimately failed to derail the token or Ripple’s commercial operations.

Institutional investors accustomed to evaluating regulatory risk may have viewed the legal cloud as the primary threat to XRP’s adoption. The Fed’s proposal reframes the risk as structural: even if XRP wins every regulatory battle, the traditional payment system is solving the same problem with superior advantages.

A token can outlast a court fight and still face a harder competitive landscape when the legacy system upgrades the very function that made the token feel necessary.

The timing amplifies this pressure because the Fed is not acting alone.

Swift’s 25-Bank Framework Signals Coordinated Upgrade Across Traditional Payment Rails

On March 5, SWIFT announced that more than 25 banks had committed to processing payments under its new framework by June, spanning payment corridors across Australia, Bangladesh, Canada, China, Germany, India, and additional regions.

SWIFT’s move parallels the Fed’s strategy by addressing the same operational bottlenecks: high costs, slow settlement, and fragmentation across correspondent networks.

Unlike the Fed’s domestic-to-international architecture, SWIFT’s upgrade targets the cross-border portion directly, allowing banks to settle in multiple currencies on a single platform without cycling through intermediate correspondent banks.

For institutional investors evaluating XRP, the significance lies in the coordinated nature of these upgrades. Neither the Fed nor SWIFT is imposing a new payment standard through regulation; both are enhancing infrastructure that banks already use and trust.

This creates a compounding competitive effect: as FedNow and SWIFT each reduce friction within their respective domains, the need for a separate bridge asset diminishes. Banks operating across multiple corridors can now choose native settlement solutions built into the systems they already operate, rather than adding XRP to their treasury or payment operations.

The 25-bank commitment to SWIFT’s framework by June represents a concrete timeline for this transition, not a hypothetical future state.

The institutional calculus shifts when the alternative to holding XRP is not “use the old correspondent system” but “use upgraded correspondent infrastructure with lower friction and full regulatory integration.” That shift is material for hedge funds, asset managers, and payment service providers who have considered XRP as a liquidity or settlement tool.

If traditional rails are eliminating the scarcity value that made XRP attractive in the first place, the token’s upside potential depends increasingly on use cases outside payments, a much narrower thesis than the cross-border infrastructure narrative that has dominated its market positioning for years.

XRP’s Core Utility Narrative Faces Redefinition as Payment Scarcity Erodes

Ripple has spent years building a narrative around XRP as infrastructure for global payments, emphasizing the asset’s neutral role in a fragmented landscape. The XRPL’s own positioning describes XRP as a currency bridge inside the network’s decentralized exchange, adding technical depth to the payments thesis.

This framing has supported XRP’s market premium because it addressed an intuitive problem: if cross-border payments remain slow, expensive, and operationally fragmented, a neutral bridge asset offers clear utility. The narrative worked because the pain point was real, widely understood, and genuinely unresolved by traditional rails.

That pain point is now being addressed by the incumbents with regulatory backing and existing infrastructure.

The institutional question becomes not whether XRP can facilitate fast, low-cost cross-border payments, the XRPL technical capabilities remain unchanged, but whether the competitive job is becoming less scarce. Once major payment rails like FedNow and SWIFT integrate upgrade pathways that reduce friction, friction reduction moves from a differentiator to a baseline expectation.

At that point, XRP’s case shifts from “we solve the problem better” to “we solve a problem that is becoming less urgent.” For asset allocators, this distinction matters because it alters the risk-reward profile. A token defending a shrinking addressable market faces structural headwinds regardless of technical merits or legal victories.

Ripple’s own bank partnerships remain relevant, but they face a strategic pressure that was not present a year ago. Banks signing RippleNet corridors gain access to XRP liquidity pools and faster settlement times compared to traditional correspondent banking.

Once FedNow corridors offer comparable speed and SWIFT integrates native multi-currency settlement, the incremental advantage of a RippleNet corridor narrows. Banks will evaluate whether the additional complexity of managing XRP liquidity is justified by marginal improvements over upgraded traditional rails.

That calculation favors incumbent infrastructure unless Ripple can demonstrate XRP adoption that creates network effects or liquidity pools so deep that correspondent banks prefer them to regulated settlement systems.

Institutional Investors Must Weigh XRP’s Narrowing Payments Narrative Against Regulatory Clarity

The XRP narrative has carried two sources of value historically: the belief that cross-border payments remain broken, and the belief that regulatory clarity would unlock massive institutional adoption. The April

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Banks risk another 2008 crisis after moving the equivalent of 18 million BTC into shadow lenders
Institutional

Banks risk another 2008 crisis after moving the equivalent of 18 million BTC into shadow lenders

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Editorial Summary

U.S. banks have quietly shifted $1.32 trillion in credit exposure to nonbank financial institutions since 2008, representing a 2,320% increase that now constitutes the fastest-growing loan category in the banking sector. While current regulatory metrics do not indicate an imminent systemic crisis, the structural shift concentrates counterparty risk in less-regulated shadow lending vehicles, potentially delaying but not preventing contagion if private credit markets experience significant stress. For institutional investors, this bifurcated lending architecture creates new transmission mechanisms for financial stress that warrant close monitoring as private credit valuations face pressure from rising rates and macro headwinds.

The banking system’s response to the 2008 financial crisis has created an unintended consequence: rather than reducing systemic risk, major financial institutions have merely relocated it. Over the past 15 years, U.S. banks have channeled an unprecedented volume of lending through nonbank financial institutions (NDFIs), including private credit funds, mortgage finance companies, securitization structures, and other shadow banking vehicles. The Federal Deposit Insurance Corporation documented $1.32 trillion in bank loans to NDFIs by the third quarter of 2025, a staggering increase from just $56 billion in the first quarter of 2010. This 2,320% expansion reflects an annual compound growth rate of 21.9% from 2010 to 2024—far outpacing traditional loan category growth and reshaping the architecture of American credit intermediation in ways that regulators and market participants are only beginning to fully assess.

The Post-Crisis Structural Shift in Bank Lending

Following the 2008 financial crisis, regulatory pressure and market discipline forced large banks to reduce their exposure to the riskiest forms of direct lending. Rather than simply contracting credit availability, however, banks adapted by becoming the primary funding source for alternative lenders willing to originate the loans banks could no longer comfortably hold. This dynamic created a symbiotic relationship: nonbank lenders gained access to cheaper funding through bank warehouse lines and committed credit facilities, while banks maintained profitable lending relationships without bearing the full weight of credit selection and underwriting risk. The arrangement appeared logical from both a prudential and competitive standpoint—banks diversified their counterparty base, and markets gained new providers of credit in areas where traditional banking had retreated.

The magnitude of this shift demands institutional attention. The NDFI lending category grew from representing a negligible share of bank balance sheets to becoming one of the largest post-crisis expansions in bank credit exposure. Banks now hold substantial warehouse lines supporting private credit funds, committed credit facilities backing securitization vehicles, and various forms of liquidity support for mortgage finance platforms and other alternative lenders. This represents a fundamental structural change in how credit flows through the American financial system. Rather than a direct bank-to-borrower relationship, credit now passes through intermediate nodes controlled by entities with materially weaker regulatory oversight, lower capital requirements, and fewer liquidity obligations than traditional banks.

The appeal to banks is straightforward: NDFI lending generates fee income, maintains client relationships, and allows banks to participate in profitable credit markets while ostensibly reducing their direct exposure to credit losses. From a regulatory capital perspective, banks face lower risk weights on certain NDFI exposures than they would on direct loans in the same categories. However, this apparent risk reduction is largely illusory. When stresses emerge in the nonbank sector, banks discover they cannot simply walk away from counterparties whose failure would create reputational damage, disrupt profitable franchises, or expose undisclosed contingent liabilities. The funding lines that seemed like secondary exposures become primary obligations when borrowers face redemptions or valuation pressure.

Regulatory Metrics Mask Emerging Vulnerabilities

On the surface, current regulatory data provides little evidence of an imminent banking crisis. The FDIC’s latest industry profile reports that the banking sector earned $295 billion in 2025, maintained a fourth-quarter return on assets of 1.24%, reduced unrealized securities losses to $306 billion, and counted only 60 problem banks—well within normal, non-crisis ranges. Capital ratios across the sector remain historically robust, and liquidity coverage ratios exceed regulatory minimums by comfortable margins. These headline figures have led some analysts to dismiss renewed comparisons to 2008 as reflexive doom-mongering divorced from quantitative reality. However, this benign picture reflects a misleading aggregation of heterogeneous exposures and fails to capture second-order contagion channels specific to the current market structure.

The critical vulnerability lies not in the banking sector’s current profitability or capital adequacy, but in the timing and transmission mechanism of stress through the lending chain. In the pre-2008 system, panic typically began at the bank itself: depositors withdrew funds, counterparties lost confidence, and institutions faced acute liquidity crises. Today’s system can remain stable at the bank level while experiencing acute stress further up the nonbank supply chain. A private credit fund facing investor redemptions, a mortgage finance vehicle experiencing mark-to-market losses, or a securitization structure contending with basis risk in market dislocations can all trigger liquidity demands on banks before banks face direct pressure from depositors or regulators. This sequential structure means banks may face massive funding demands precisely when they are already experiencing balance sheet stress from their own exposure to the deteriorating nonbank vehicle.

The regulatory framework has not fully adapted to this morphology of risk. Banks report NDFI exposures in aggregate categories that obscure the concentration of counterparty risk among a relatively small number of large private credit managers and financing platforms. Stress tests and capital requirements are calibrated to traditional market cycles and assume continuous access to funding markets; they have not been systematically updated to address scenarios where private credit markets freeze and banks must simultaneously unwind positions while providing new liquidity to distressed counterparties. The FDIC’s growing emphasis on NDFI lending as a monitoring category is appropriate, but current disclosure standards do not yet provide institutional investors, regulators, or market analysts with sufficient granularity to assess true systemic exposure to specific nonbank platforms or asset classes.

Implications for Institutional Risk Management and Market Structure

For institutional investors operating in credit and equity markets, this structural shift has profound implications for portfolio construction and risk assessment. First, it means that traditional credit analysis of bank balance sheets is increasingly incomplete without detailed understanding of bank counterparty exposures to nonbank lenders. A bank’s true credit quality depends not only on its direct loan book and securities portfolio, but also on its contingent obligations to nonbank counterparties and the stability of assets those counterparties are financing. Second, it creates opportunities for sophisticated investors to identify banks with the largest and most volatile exposures to distressed nonbank lenders, allowing them to position ahead of potential stress events. Third, and most significantly, it confirms that the next major financial stress event, if one occurs, will likely manifest first in private credit markets rather than traditional banking institutions.

The private credit market has grown into a multi-trillion-dollar ecosystem funded substantially by bank warehouse lines and committed facilities. If valuations in this market compress—whether due to rising rates, credit deterioration, or broader macro stress—the impact will propagate backward toward banks faster than many investors currently appreciate. Funds facing redemptions or capital calls will draw on bank lines; securitization vehicles experiencing basis volatility will tap committed credit facilities; mortgage platforms will seek liquidity support. Banks will meet these demands because not doing so would be worse for their own balance sheets and earnings power. However, this sequence of events could create a credit cascade where nonbank stress becomes bank stress within a compressed timeframe, with limited ability for normal market mechanisms to stabilize valuations or restore liquidity.

The policy and market implications are equally significant. Regulators face a complex challenge: the current system efficiently allocates credit and has generated substantial economic benefits, but it has also created new transmission mechanisms for systemic risk that previous regulatory frameworks do not adequately address. Institutional investors should assume that the next period of financial stress will require detailed analysis of bank NDFI exposures as a core component of systemic risk assessment. Finally, the aggregate data on bank-to-nonbank lending should prompt a broader conversation about whether current capital and liquidity standards for banks adequately reflect their true exposure to nonbank counterparties and the nonlinear risk dynamics of the private credit ecosystem. The banking sector’s current health masks these structural vulnerabilities—and that masking effect itself represents a form of systemic risk that deserves urgent attention from both market participants and policymakers.