Barefoot Innovation Podcast

Welcome everyone, to this quick special episode. I want to share a few thoughts on the disruption underway in the U.S. financial regulatory system.

While we have listeners throughout the world, I imagine most everyone has seen that the incoming administration is moving with unprecedented speed to review the operations of the federal government, issuing a flood of executive orders and setting up the new Department of Government Efficiency, or DOGE, under the leadership of Elon Musk. One of the first agencies DOGE has challenged is the Consumer Financial Protection Bureau. The CFPB’s staff have been told to stop working, there are reports that the vast majority may be terminated, and the President has nominated a new Director. There are also reports that the new administration may move to restructure the prudential bank regulatory agencies, especially the FDIC, potentially consolidating the bank supervision function in one agency – maybe the OCC. 

The U.S. has a uniquely complex financial regulatory structure, with multiple agencies playing interrelated roles. As of the afternoon I’m recording this show, we have acting agency heads at the helm of many of them. For some, President Trump has nominated new leaders who will undergo review and voting by the U.S. Senate, a process that may take weeks or months. There is also a new system for overseeing their spending and regulatory activities, centered in the White House Office of Management and Budget.

It’s too early to know how these efforts will develop. We do know, though, that one of the Trump administration’s main goals is to improve government efficiency. This is a topic on which AIR does a great deal of work, and we’ll be bringing some thoughtful people to the table, including on this show, to talk about ideas. 

We also know that the DOGE effort is aimed at countering fraud, which is another priority of our work at AIR. While we focus more on fraud in the financial system than in the government, we see emerging, common technologies for solving both, and we’ll be examining them. 

It also appears that the new federal regulators and new Congress will be encouraging growth in fintech activity, specifically including crypto, and will be crafting regulatory changes that address potential risks as these markets expand. Robust policy discussions are underway in Washington about clarifying the regulatory frameworks for crypto and digital assets, and about allowing banks to engage in more crypto activities. 

And, while it may sound like the opposite end of the telescope, there is also tremendous bipartisan interest, on Capitol Hill and at the regulatory agencies, in the future of small banks. The U.S. has thousands of small community banks and credit unions that are, today, comparatively low-tech and therefore face huge competitive challenges in today’s marketplace, both in managing their costs and in meeting customers’ evolving needs. Here too, AIR has spent years exploring both challenges and solutions for these institutions, and we’ll be sharing what we’re learning. 

I’m not going to try to keep listeners up to date with the changes ahead. Even if we tried, the story is changing literally every day – sometimes multiple times a day. And if there are coming political battles over government structures and powers, we won’t be in that fray. What we will be doing, though, is contributing ideas and perspectives that can move the system forward. Financial regulation can be more effective and more, yes, efficient, if we do it with better technology. If you missed it, please check out my recent podcast and blog post suggesting that it’s time to build a better new model – a Regulation 2.0 – based on new technology.

The Trump administration is pursuing a strategy that can be thought of as creative destruction, clearly grounded in the belief that today's U.S. government needs radical change that has to begin by breaking things. People will disagree about whether that’s right or wrong, but I wonder if we can agree on one thing: When important, complex systems break, they never return to their pre-disruption form. They change. One thing I’ve learned in my life is that in such situations, the essential challenge is to invest effort in envisioning what that next state should be and laying down its framework. What principles should drive it? What key components does it need? How might it go wrong? And, crucially, what could be made better than before? After things break, what should be built?

2025 will be a very consequential year for financial regulation – I think the most consequential of my long career. We will be in the mix, trying to help.