Written by: Jeremy Baumruk, Director of Risk & Compliance 
   

As the federal government implements significant budgetary cutbacks - driven by a new Department of Government Efficiency (DOGE) initiative - U.S. banks are facing an evolving regulatory landscape. These budget cuts have resulted in reduced agency capacity, meaning that key regulators like the CFPB and OCC are now overseeing fewer institutions and conducting fewer examinations. This decrease in active supervision creates an uneven playing field: while larger banks may enjoy a temporary reprieve from stringent oversight, smaller community banks continue to be closely monitored by their local regulators. The resulting regulatory "vacuum" not only pressures larger institutions to self-regulate with extra vigilance but also risks creating compliance and enforcement gaps. When consumer protection exams and anti-money-laundering reviews become less frequent, banks may be tempted to let internal controls slip, a scenario that could lead to significant legal and reputational risks once normal enforcement resumes or when state regulators and private litigants step in. 

Adding to the challenge is the evolution of cybersecurity. Budget constraints have forced agencies such as the Cybersecurity and Infrastructure Security Agency (CISA) to suspend or scale back critical programs, including initiatives like the Cyber Incident Reporting for Critical Infrastructure Act (CIRCIA). These rollbacks, coupled with mass layoffs in government cybersecurity teams, have diminished the federal capacity for early threat detection and timely information sharing. As a result, banks that rely on comprehensive threat intelligence feeds and rapid cybersecurity alerts may find that these sources are now less robust or subject to delays until alternative solutions emerge. In this context, it is imperative for banks to develop internal expertise and rely on industry-based threat intelligence to stay ahead of potential cyber threats. 

MITIGATING THE RISK 

Addressing these obstacles means banks must adopt a proactive stance. A key strategy is to double down on internal compliance programs. Maintaining robust internal controls is essential, regardless of the current pace of regulatory oversight. This means continuing regular audits in high-risk areas such as consumer lending, anti-money laundering, and data privacy—even when external examinations are sparse. Engaging directly with regulators to seek clarification on expectations during this transition can also reduce uncertainty and help banks better align their practices with evolving regulatory priorities. Networking with industry peers through associations like the ABA or state banking groups further enables institutions to share insights and strategies, creating a collaborative environment for tackling compliance challenges. 

Furthermore, given the current reduction in government cybersecurity support, it is crucial for institutions to bolster their own cyber defense capabilities. This can be achieved by investing in experienced cybersecurity professionals—particularly as layoffs in the public sector may make top talent more available—and by providing ongoing training for IT teams on emerging threats. Participating in information-sharing groups such as FS-ISAC can also help banks receive timely threat alerts. Alongside these measures, revisiting incident response and business continuity plans is critical, especially under the assumption that key elements of critical infrastructure like power and telecommunications could face disruptions. In short, being prepared with training and threat intelligence sharing strategies will ensure that institutions can continue operating smoothly even when external support may be slower than in the past. 

American Banks are operating in a challenging environment of change: federal budget cuts have trimmed the very agencies that oversee financial services and support cybersecurity, while regulation and policy are being challenged. The implications for regulatory compliance, risk management, and cybersecurity are profound. Banks may enjoy a brief respite from intense oversight, but this comes with the trade-off of greater responsibility to self-manage risks. Cyber threats, meanwhile, are not taking any breaks – if anything, adversaries might seek to exploit any perceived weakness during government transitions. For institutions that lack the internal resources to keep pace with these shifting regulatory and cybersecurity challenges, outsourcing compliance and risk management can be a strategic advantage. Partnering with experienced compliance and cybersecurity professionals ensures that your institution remains vigilant, adaptive, and fully prepared—without stretching internal teams too thin or needing to hire expensive internal resources. By understanding these dynamics and acting proactively, banks can turn this period into an opportunity. 

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