The Pattern Persists: How Financial Legislation Continues to Shield Banks While Promising Public Protection

New regulations emerge as old protections prove inadequate, critics say system remains tilted toward financial institutions

By Claude AI Anthropic
Wall Street Journal

As banking regulators prepare to implement sweeping new capital requirements in 2025 and deposit insurance rules undergo their most significant updates in decades, critics argue that a familiar pattern is emerging: legislation marketed as protecting consumers that ultimately serves to preserve the banking system itself.

The incoming Trump administration is expected to focus on deregulatory efforts, potentially rolling back several of the previous administration's regulatory initiatives, while banks prepare for the implementation of Basel III Endgame rules that could increase capital requirements by an estimated 16% for large institutions.

This regulatory shuffle comes as President Trump signed an executive order in August 2025 titled "Guaranteeing Fair Banking for All Americans," directing federal agencies to combat "debanking" practices and as the FDIC withdraws proposed rules relating to brokered deposits, corporate governance, and incentive-based compensation arrangements, signaling a shift in regulatory priorities.

The Basel III Endgame: Strengthening Banks or System Preservation?

The Basel III Endgame proposal, which would apply to banks with $100 billion or more in total assets, aims to standardize aspects of the capital framework related to credit risk, market risk, operational risk, and financial derivative risk. Regulators frame this as necessary for financial stability, but implementation has faced delays across jurisdictions, with the European Central Bank and Bank of England citing U.S. inaction as reasons for postponing their own Basel III compliance.

Industry participants are preparing for this to be the most consequential change to U.S. banking regulation since the 2010 passage of the Dodd-Frank Act, as it will have far-reaching implications for economic growth, credit availability, market liquidity, and financial stability. Yet the proposal has drawn criticism for potentially reducing economic growth. A PwC study projected that implementation of the Basel III Endgame requirements would reduce economic growth in the U.S. by 56 basis points via reduced returns to bank shareholders and increased costs to consumers and businesses.

FDIC Reforms: Digital Age Updates or Enhanced Bank Protection?

The Federal Deposit Insurance Corporation has been busy modernizing its own rules. Beginning in May 2025, banks will be required to display the FDIC official digital sign near the name of the bank on all bank websites and mobile applications, extending the traditional branch-based deposit insurance messaging to digital channels.

More significantly, new FDIC rules that took effect in April 2024 have changed deposit insurance coverage for trust accounts, limiting coverage to $1.25 million per trust owner per insured institution, potentially reducing coverage for some depositors who previously had higher protection levels.

The changes come as the 2023 failures of Silicon Valley Bank, Signature Bank and First Republic Bank marked some of the largest bank failures in U.S. history, with all three holding abnormally large percentages of uninsured deposits above the FDIC limit. In response to these failures, the federal government made the extraordinary decision to cover all the deposits, including those that exceeded federal insurance limits, demonstrating again that systemic institutions receive protection beyond normal rules.

Historical Echoes in Modern Policy

Financial historians note striking parallels between contemporary regulatory responses and historical precedents. Since the establishment of the Federal Reserve under the Federal Reserve Act of 1913, government bailouts have typically been justified on the grounds of systemic risk, meaning that the failure of a large or interconnected entity could destabilize the broader economy.

The Troubled Asset Relief Program (TARP), established during the 2008 crisis, ultimately committed approximately $475 billion across five program areas, with $250 billion going to stabilize banking institutions. While TARP recovered $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit, critics argue this accounting obscures the true cost of government support.

Academic research suggests the total direct cost of the 2008 crisis-related bailouts in the United States was on the order of $500 billion, or 3.5% of GDP in 2009, with the largest direct beneficiaries being the unsecured creditors of financial institutions.

The Regulatory Outlook for 2025

As regulators focus on third-party and non-financial risk in 2025, following the CrowdStrike outage that highlighted operational risks from technology dependencies, the emphasis appears to be on maintaining system stability rather than questioning fundamental structures.

FDIC Acting Chairman Travis Hill has indicated the agency is reevaluating how it processes deposit insurance applications from organizers proposing banks with new or innovative business models, potentially bringing fintech firms into the regulated banking sphere.

Meanwhile, environmental, social, and governance (ESG) initiatives are becoming mandatory for banks, with regulators introducing stringent frameworks to ensure financial institutions assess and manage ESG-related risks and enhance their reporting standards.

The Digital Currency Revolution: Control by Different Means

The emergence of cryptocurrency regulation in 2025 represents perhaps the most significant expansion of financial control since the gold confiscation of 1933. In July 2025, President Trump signed the GENIUS Act into law, creating the first federal regulatory framework for stablecoins, while the Anti-CBDC Surveillance State Act passed the House, prohibiting the Federal Reserve from issuing a central bank digital currency without congressional approval.

Yet critics argue these developments follow the familiar pattern of appearing to promote freedom while strengthening system control. The GENIUS Act requires stablecoin issuers to hold dollar reserves, effectively turning private cryptocurrency companies into extensions of the Federal Reserve system. Meanwhile, the prohibition of CBDCs may seem like a victory for privacy advocates, but it leaves the digital payments landscape to be dominated by private companies that remain subject to extensive government surveillance and reporting requirements.

Over 90 percent of countries analyzed have active central bank digital currency projects, with the digital yuan in China processing nearly $1 trillion in transactions by 2024. While the U.S. officially opposes CBDCs, President Trump issued an executive order in January 2025 prohibiting agencies from undertaking any action to establish, issue, or promote CBDCs, the practical effect may be to channel digital transactions through regulated private entities rather than direct government control.

The Erosion of Physical Currency and Records

Parallel to cryptocurrency regulation, traditional protections for physical money and paper records continue to erode. Federal law requires banks to report cash deposits of at least $10,000, a threshold that has remained unchanged since 1970 despite decades of inflation, making the reporting requirement increasingly restrictive in real terms.

The shift from paper to electronic records has proceeded with minimal public debate about the implications for privacy and government access. The Electronic Signatures in Global and National Commerce Act (E-Sign Act) of 2000 states that electronic records have the same legal validity as paper documents, but electronic records are far more susceptible to mass surveillance and government seizure than physical documents stored in private locations.

Banking regulations now explicitly favor digital record-keeping. The Consumer Financial Protection Bureau allows creditors to comply with record retention requirements by storing information in computerized systems rather than keeping paper copies, while the Bank Secrecy Act requires that banks maintain most records for at least five years in forms including electronic storage.

This transition has practical implications for individual privacy. While a government search of paper records typically requires physical access to specific locations, digital records can be searched instantly across vast databases. The shift represents a fundamental change in the balance of power between individuals and institutions, accomplished through technical modernization rather than explicit policy debate.

Cash Controls and Transaction Surveillance

The government's ability to monitor financial transactions has expanded dramatically through seemingly routine banking regulations. Banks must report cash deposits of $10,000 or more through Currency Transaction Reports (CTRs), and "structuring" transactions to avoid this threshold is illegal regardless of whether the funds are derived from legal or illegal activity.

Recent OCC guidance has reinforced these surveillance capabilities while appearing to protect privacy. Banks are reminded of their legal obligations to protect customers' financial records under the Right to Financial Privacy Act, but they are also encouraged to file Suspicious Activity Reports on a voluntary basis, creating a system where privacy protection coexists with expanded reporting.

The effect is a financial system where small transactions remain largely unmonitored, but any significant movement of wealth triggers automatic government notification. This creates what critics describe as a "monetary panopticon"—a system where the possibility of observation influences all financial behavior, even when actual monitoring is selective.

International Coordination and Digital Control

The pattern extends globally, with international coordination strengthening rather than limiting government control over money. The Atlantic Council tracks over 135 countries with active CBDC development projects, triple the number identified in 2020. These projects are explicitly designed to provide governments with real-time visibility into all transactions within their monetary systems.

Even in the United States, which officially opposes CBDCs, the US continues to engage in wholesale cross-border payments research through Project Agorá, an initiative in collaboration with six other major central banks. This suggests that while retail surveillance may be conducted through private intermediaries, wholesale financial surveillance continues through official channels.

The Systemic Protection Pattern

Research has shown that in the roughly 200 years between 1800 and 2008 alone, banking crises and state bailouts took place precisely a dozen times in the UK, thirteen times in the US, and fifteen times in France. No other industry in the world can claim a similar record of recurring crises and government backing.

The 2008 financial crisis saw over $1 trillion of government support deployed, and "voters were furious." Yet the pattern persists across different regulatory regimes and political administrations, now extended into the digital realm through cryptocurrency regulation and the systematic elimination of private, unsurveilled forms of money.

As new regulations emerge in 2025, the fundamental question remains unchanged: Are these measures designed to protect the public, or to ensure the continued stability of the banking system that policymakers view as essential to economic function? The digital transformation adds a new dimension: these systems now provide unprecedented capability for monitoring and controlling individual financial behavior, accomplished through laws marketed as innovation and modernization rather than surveillance and control.

Looking Ahead

With the next four years expected to be a time of deregulation under the Trump administration, and banks facing the full implementation of Basel III standards that will increase capital requirements and leverage ratio standards, the stage is set for another cycle of regulatory adjustment—one that history suggests will ultimately serve to preserve the system while promising to protect the public.

The financial industry, regulators, and policymakers all acknowledge the need for a stable banking system. The debate continues over whether current approaches achieve that stability through genuine reform or simply through more sophisticated forms of system preservation that ensure banks can continue their role as the government's essential financial partners.

---

Sources

1. Deloitte US. "2025 Banking Regulatory Outlook." Available at: https://www2.deloitte.com/us/en/pages/regulatory/articles/banking-regulatory-outlook.html
2. ABA Banking Journal. "Preparing for 2025: Navigating compliance in a time of change." Available at: https://bankingjournal.aba.com/2025/01/preparing-for-2025-navigating-compliance-in-a-time-of-change/
3. EY Global. "Four regulatory priorities to drive financial institutions' focus in 2025." Available at: https://www.ey.com/en_gl/insights/financial-services/four-regulatory-priorities-to-drive-financial-institutions-focus-in-2025
4. Sidley Austin LLP. "President Trump Signs 'Fair Banking' Executive Order." August 8, 2025. Available at: https://www.sidley.com/en/insights/newsupdates/2025/08/president-trump-signs-fair-banking-executive-order-directing-financial-regulators-to-remedy
5. FDIC. "FDIC Finalizes Rule to Modernize Official Signs and Advertising Statement Requirements." Available at: https://www.fdic.gov/news/press-releases/2023/pr23110.html
6. FDIC. "FDIC Extends Compliance Date for Subpart A." Available at: https://www.fdic.gov/news/press-releases/2024/fdic-extends-compliance-date-subpart-fdic-official-signs-and-advertising
7. FDIC. "FDIC Withdraws Proposed Rules." March 3, 2025. Available at: https://www.fdic.gov/news/financial-institution-letters/2025/fdic-withdraws-proposed-rules-related-brokered-deposits
8. CNBC. "FDIC bank deposit rules just changed." April 9, 2024. Available at: https://www.cnbc.com/2024/04/09/fdic-bank-deposit-rules-just-changed-heres-what-savers-need-to-know.html
9. American Deposits. "FDIC Insurance Limits in 2025." January 24, 2025. Available at: https://americandeposits.com/insights/fdic-insurance-limits-2025/
10. Federal Reserve Board. "Agencies request comment on proposed rules to strengthen capital requirements for large banks." Available at: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230727a.htm
11. CEPR. "Basel endgame: Bank capital requirements and the future of international standard setting." Available at: https://cepr.org/voxeu/columns/basel-endgame-bank-capital-requirements-and-future-international-standard-setting
12. PwC. "Basel III Endgame: The next generation of capital requirements." Available at: https://www.pwc.com/us/en/industries/financial-services/library/basel-iii-and-banking.html
13. U.S. Department of the Treasury. "Troubled Asset Relief Program (TARP)." November 2, 2023. Available at: https://home.treasury.gov/data/troubled-asset-relief-program
14. Bankrate. "What is a bank bailout?" September 30, 2024. Available at: https://www.bankrate.com/banking/what-is-a-bank-bailout/
15. Cornell Law School. "Bailout Definition." Available at: https://www.law.cornell.edu/wex/bailout
16. Annual Reviews. "Measuring the Cost of Bailouts." December 26, 2019. Available at: https://www.annualreviews.org/content/journals/10.1146/annurev-financial-110217-022532
17. Wikipedia. "Bailout." August 2, 2025. Available at: https://en.wikipedia.org/wiki/Bailout
18. Fortune. "The government using taxpayer money to bail out banks will unavoidably continue." June 11, 2024. Available at: https://fortune.com/2024/06/11/bank-bailouts-government-will-continue-finance-fdic-treasury/
19. OnCourse Learning. "Banking Trends: The 8 Regulatory Trends of 2025." April 24, 2025. Available at: https://www.oncourselearning.com/resources/8-bank-regulatory-trends-2025
20. Chambers and Partners. "Banking Regulation 2025." Available at: https://practiceguides.chambers.com/practice-guides/banking-regulation-2025
21. Atlantic Council. "Four questions (and expert answers) on the new US cryptocurrency legislation." July 18, 2025. Available at: https://www.atlanticcouncil.org/blogs/new-atlanticist/four-questions-and-expert-answers-on-the-new-us-cryptocurrency-legislation/
22. White House. "Strengthening American Leadership in Digital Financial Technology." January 23, 2025. Available at: https://www.whitehouse.gov/presidential-actions/2025/01/strengthening-american-leadership-in-digital-financial-technology/
23. ICIJ. "Landmark cryptocurrency legislation passes US House, to be signed into law by President Trump." July 21, 2025. Available at: https://www.icij.org/news/2025/07/landmark-cryptocurrency-legislation-passes-u-s-house-to-be-signed-into-law-by-president-trump/
24. Ocorian. "Crypto Week 2025: From uncertainty to regulation in the U.S. digital asset space." Available at: https://www.ocorian.com/knowledge-hub/insights/crypto-week-2025-uncertainty-regulation-us-digital-asset-space
25. Atlantic Council. "Central Bank Digital Currency Tracker." July 10, 2025. Available at: https://www.atlanticcouncil.org/cbdctracker/
26. Atlantic Council. "Cryptocurrency Regulation Tracker." November 10, 2022. Available at: https://www.atlanticcouncil.org/programs/geoeconomics-center/cryptoregulationtracker/
27. IMF. "Central Bank Digital Currency (CBDC) - Virtual Handbook." April 2025. Available at: https://www.imf.org/en/Topics/digital-payments-and-finance/central-bank-digital-currency/virtual-handbook
28. US News. "If You Deposit a Lot of Cash, Does Your Bank Report It to the Government?" August 22, 2025. Available at: https://www.usnews.com/banking/articles/if-you-deposit-a-lot-of-cash-does-your-bank-report-it-to-the-government
29. SoFi. "How Much Cash Can You Deposit In a Bank?" May 19, 2025. Available at: https://www.sofi.com/learn/content/what-happens-if-i-deposit-more-than-10000-dollars/
30. IRS. "Understand how to report large cash transactions." Available at: https://www.irs.gov/newsroom/understand-how-to-report-large-cash-transactions
31. Consumer Financial Protection Bureau. "Record retention." Available at: https://www.consumerfinance.gov/rules-policy/regulations/1002/12/
32. OCC. "Protecting Customer Financial Records." Available at: https://www.occ.gov/news-issuances/bulletins/2025/bulletin-2025-23.html
33. Federal Reserve. "Moving From Paper to Electronics: Consumer Compliance Under the E-Sign Act." Available at: https://www.consumercomplianceoutlook.org/2009/fourth-quarter/q4_02/
34. FFIEC. "BSA/AML Appendices - Appendix P – BSA Record Retention Requirements." Available at: https://bsaaml.ffiec.gov/manual/Appendices/17
35. SmartAsset. "How Much Cash Can You Withdraw From Your Bank?" April 14, 2025. Available at: https://smartasset.com/checking-account/how-much-cash-can-you-withdraw-from-your-bank
36. The Laws Written to Protect Banks — Not People - YouTube