Welcome to this month’s Community Banking News update, your go-to roundup of the biggest news developments affecting community banks and credit unions, plus why they matter. Last month, we covered the federal government’s easing of crypto-skeptical guidance, the use of AI to combat deepfakes, the big shakeup at the National Credit Union Administration, and more. (Missed it? Catch up here.)
This month, Michelle Bowman is confirmed as the Federal Reserve’s top bank regulator, the CFPB reverses course on key policies, including open banking, and bank M&A activity picks up pace. Meanwhile, bank profits rose in Q1, major U.S. banks are exploring a joint stablecoin, and crypto investment scams surge. What does it all mean for community financial institutions? Read on to find out.
The U.S. Senate confirmed Federal Reserve Governor Michelle Bowman as Vice Chair for Supervision, the central bank’s top regulatory role, in a narrow vote. Bowman, a former community banker and Kansas state bank commissioner, has served on the Fed Board since 2018. Her confirmation fills the vacancy left by Michael Barr, who resigned earlier this year. Bowman is expected to lead efforts to ease leverage rules, simplify capital requirements, and increase transparency in stress testing for large banks. She has criticized existing regulations as overly complex and costly, advocating for a more pragmatic approach. While industry groups like the American Bankers Association and credit union associations have praised her appointment, some Democratic lawmakers, including Senator Elizabeth Warren, have expressed concerns over potential deregulation and the Fed's independence.
Bowman's background as a community banker and her emphasis on tailoring regulations to fit institutions of varying sizes suggest a regulatory environment attuned to the needs of smaller financial institutions. Her opposition to broad regulatory measures, such as the proposed cap on debit interchange fees, indicates a potential shift towards policies that consider the operational realities of community banks and credit unions. Community financial institutions should closely monitor forthcoming regulatory changes to understand how they may affect operations and compliance strategies, regardless of the direction those changes take.
The Consumer Financial Protection Bureau (CFPB) has moved to vacate its own Open Banking rule, finalized in October 2024 under former Director Rohit Chopra. Intended to give consumers more control over their financial data under Section 1033 of the Dodd-Frank Act, the rule would have required banks and credit unions to share customer account data with third-party providers in a secure, standardized format. The CFPB now argues that the rule exceeds its statutory authority and imposes excessive burdens on financial institutions.
This reversal is part of a broader shift in the CFPB’s regulatory posture. The bureau recently rescinded 67 pieces of previous guidance, citing a need to eliminate outdated or overreaching interpretations. In addition, former President Trump has signed a congressional resolution to overturn the CFPB’s cap on overdraft fees.
Why This Matters to Community Banks and Credit Unions:
These reversals mark a significant change in the regulatory landscape, easing compliance pressure on community financial institutions. Scrapping the Open Banking rule may spare banks and credit unions from costly technology upgrades and third-party data-sharing mandates, and rolling back the overdraft fee cap removes a looming revenue constraint.
Still, these shifts come with uncertainty. The absence of a standardized open banking framework may also limit opportunities for community banks and credit unions to engage with fintech partners and offer personalized, data-driven services that meet consumer expectations. As the financial industry continues to evolve, community FIs will need to balance regulatory compliance with the demand for digital services to remain competitive.
Read our interview on open banking and data strategy with the CEO of Fingoal:
The U.S. banking sector is experiencing a small increase in mergers and acquisitions (M&A) compared to last year, driven by a combination of regulatory changes, economic factors, and strategic growth objectives. In May 2025, Congress repealed a Biden-era rule that had imposed stricter scrutiny on bank mergers, signaling a more permissive regulatory environment for consolidation. However, market volatility and interest rate pressure have kept a lid on dealmaking.
Meanwhile, several significant deals have been announced or completed recently:
Why This Matters to Community Banks and Credit Unions:
While M&A activity is beginning to pick up, the anticipated wave of consolidation hasn’t fully arrived, giving community banks and credit unions a window to assess their position in a shifting landscape. The loosening of regulatory constraints may invite more merger activity over time, especially among regional players looking to scale or expand into new markets.
For smaller institutions, this moment offers both a strategic challenge and an opportunity. As competition slowly intensifies, standing out through high-touch service, specialized offerings, or smart technology investments becomes more critical. Proactive planning now, whether through partnerships, tech upgrades, or exploring your own growth options, can help ensure long-term relevance in a potentially more consolidated future.
In the first quarter of 2025, U.S. banks reported a modest increase in profitability, with total net income rising to $70.6 billion, a $3.8 billion gain from the previous quarter, according to the Federal Deposit Insurance Corporation (FDIC). Community banks contributed $6.8 billion to this total, marking a 10% increase from the prior quarter. The uptick in net income was driven by an increase in non-interest income, stemming from market movements, and a decrease in securities' losses.
In the meantime, fintech revenue, while still a small portion of the overall banking and insurance industry, surged 21% year-over-year, outpacing the 6% growth rate of traditional banks. The sector is poised for further growth with innovations in artificial intelligence and embedded payments, according to a report by QED Investors and Boston Consulting Group.
Why This Matters to Community Banks and Credit Unions:
The robust performance of community banks in Q1 2025 underscores their resilience and adaptability in a dynamic financial landscape. The increase in net income indicates effective management and operational efficiency. However, the rapid growth of fintech firms, particularly in the payments sector, presents both challenges and opportunities. Community banks and credit unions may consider strategic partnerships with fintech companies to enhance their digital offerings and meet evolving customer expectations.
Read about Acceleron’s partnership with Atlantic Community Bankers’ Bank:
Several leading U.S. banks, including JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo, are reportedly in early discussions to develop a consortium-backed stablecoin. This initiative aims to streamline routine financial transactions and counter the growing influence of crypto-native firms and fintech competitors. The proposed stablecoin would function as a digital version of the U.S. dollar, aiming to combine the fast, efficient nature of blockchain transactions with the trust and stability associated with traditional banking infrastructure. Meanwhile, Fiserv, an Acceleron partner, says it's also developing a stablecoin infrastructure for its merchants.
The move comes amid increasing regulatory attention on stablecoins. Legislative proposals like the STABLE Act and the GENIUS Act are under consideration, aiming to establish a regulatory framework for stablecoin issuance by banks and nonbanks alike. These proposals focus on reserve requirements, licensing models, and systemic risk considerations.
Why This Matters to Community Banks and Credit Unions:
The potential introduction of a consortium-backed stablecoin by major banks could significantly impact the competitive landscape for community banks and credit unions. While such a stablecoin might offer enhanced efficiency and security in transactions, it also poses challenges:
Community banks and credit unions must weigh the benefits of adopting such technologies against the operational and regulatory challenges they present. Engaging in industry discussions and staying informed about regulatory developments will be crucial in navigating this new frontier.
Read Acceleron’s Chief Business Officer’s take on the current state of stablecoins:
The FBI's Internet Crime Complaint Center (IC3) reported that Americans lost approximately $9.3 billion to cryptocurrency-related scams in 2024, marking a 66% increase from the previous year. Investment scams were the most significant contributor, accounting for $5.8 billion in losses. A prevalent tactic involved "pig butchering" schemes, where fraudsters build trust with victims online before convincing them to invest in fraudulent crypto platforms. Older adults were particularly affected, with individuals aged 60 and above reporting $4.8 billion in losses. In response, the FBI launched Operation Level Up, which has identified over 5,800 victims and prevented approximately $359 million in potential losses through timely interventions.
Why This Matters to Community Banks and Credit Unions:
The surge in cryptocurrency scams underscores the need for community banks and credit unions to enhance their fraud detection and customer education initiatives. Given that many victims are older adults, a demographic that often relies on community financial institutions, it's crucial to implement robust measures to protect these customers. Institutions can consider additional customer education, enhanced monitoring, and staff training.
By proactively addressing these challenges, community banks and credit unions can play a pivotal role in safeguarding their members against the growing threat of cryptocurrency-related fraud.
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