Potemkin “Independence” may be the Future of the Fed in Bank Regulation

SubscribeSign in

Potemkin “Independence” may be the Future of the Fed in Bank Regulation<br>A clever piece of legal and policy legerdemain by the Trump Administration puts the Fed in a bind

Todd H Baker<br>May 22, 2026

Share

The Trump Administration’s May 19th executive order1 on Fintech innovation (the “Order”) seeks to force a sharp shift in the regulatory relationship between banks and other federally regulated financial services providers and what it calls “Fintech” –any financial service offered or supported through “technological means” (as if all financial services aren’t delivered that way—I guess there might be a pawn shop somewhere still using paper tickets.)<br>The Order states that ” it is “the policy of the United States to streamline regulatory processes, reduce unnecessary barriers to entry, and encourage collaboration between fintech firms, federally regulated financial institutions, and Federal financial regulators.” That’s an anodyne but unexceptional goal, although, given the source, one naturally suspects that there is more going on here than meets the eye.<br>For those of us following the power game between the White House and Federal Reserve Board (the “Fed”), a closer look reveals a very clever piece of legal and policy legerdemain which allows the Trump Administration to pay lip service to a broad concept of Fed independence in the bank regulatory sphere while at the same time actively undermining it. As a result, the Order puts the Fed in a difficult position early in the tenure of Chair Kevin Warsh. 2<br>The Order defines “Fintech” broadly. While it includes what we usually think of as Fintech-- things like neobanks and other nonbank providers of traditional financial products--it’s hard not to conclude that the real focus is purveyors of the Administration’s (and the Trump family’s) favorite types of “innovative,” gambling-based activities: crypto trading and prediction markets. It also seeks to promote blockchain solutions of all types.<br>The scope of the Order is as expansive as it could possibly be:<br>““Fintech firm” refers to a non-bank company that uses or develops technological means to offer or support the offering of financial products or services, including, but not limited to, any application or any digital or online technology that facilitates access to, management of, or data processing for financial products or services. Such financial products or services may include, but are not limited to, payment processing, lending, deposit-taking, derivatives, investment management, brokerage services, underwriting and capital-market activities, custodial and fiduciary services, digital banking, digital asset-related services, securities and commodities market activities, and blockchain-based services. For the avoidance of doubt, such financial products or services also include the activities set forth in paragraphs (A) through (G) of section 4(k)(4) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)(4)).” The last sentence incorporates all activities deemed “financial in nature” that are permissible to Financial Holding Companies. 3<br>The Order requires the heads of the Consumer Financial Protection Bureau, the Securities and Exchange Commission, the National Credit Union Administration, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency –but not the Fed--to do a variety of concrete things:<br>“conduct a review of existing regulations, guidance, supervisory practices, and application processes to identify those that could be updated to facilitate innovation, and competition to financial products and services for fintech firms, particularly those that are small and emerging. The reviews shall identify regulations, guidance documents, orders, no-action letters, and other items that unduly impede fintech firms from entering into partnerships with federally regulated institutions (including insured depository institutions, credit unions, broker-dealers, investment advisers, and futures commission merchants), as well as regulations, guidance documents, orders, no-action letters, and other items that could be amended to streamline application processes for eligible fintech firms seeking bank charters, credit union charters, deposit or share insurance, and other Federal licenses, registrations, and authorizations, balancing innovation interests with the importance of safety and soundness, consumer and investor protection, market integrity, financial stability, and oversight.”<br>Within 180 days, the named Federal financial regulators are required, in consultation with Kevin Hassett, the Assistant to the President for Economic Policy, to “take steps” to encourage innovation as a result of the review.<br>But the most interesting part for Fed watchers is this--Section 4(a) of the Order also contains a “request” for the Fed to comply with all the...