4 banks that will be in regulators' hot seat in 2025

December 30, 2024 1:08 PM

WASHINGTON — The banking industry will face an evolving regulatory landscape in 2025, shaped by political shifts and recalibrations on the part of policymakers in Washington.

President Donald Trump's return to the White House is bringing with it a renewed focus on deregulation and economic growth, but it won't absolve financial institutions from scrutiny. Key bank regulatory agencies including the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp and the Consumer Financial Protection Bureau are continuing to keep an eye on compliance, albeit with a more business friendly tilt.

Despite promises to roll back red tape from Trump transition officials, high profile issues such as anti-money-laundering violations, cybersecurity vulnerabilities and discriminatory lending practices are expected to continue drawing attention. Meanwhile, some regulators are turning toward threats outside of the banking sector that could be hard to pull back from under the Trump administration, such as the CFPB's recent designation of Google's payments arm.

Here are a few of the institutions that grabbed regulators' attention in 2024 and are expected to continue attracting attention in the next year.

Adobe Stock

TD Bank: The latest recipient of bank regulators' harshest tool

TD Bank was one of the banking industry's biggest regulatory stories in 2024, with the bank pleading guilty to money-laundering conspiracy charges that resulted in a $3.09 billion fine and a cap on its U.S. assets.

The repercussions of this legal outcome are expected to ripple through the bank's operations in 2025, creating hurdles that will test its ability to navigate regulatory scrutiny, operational constraints and reputational recovery.

The asset cap, which limits TD Bank's U.S. holdings to approximately $434 billion, will constrain the bank's growth potential. Analysts say the restriction will force the bank to recalibrate its strategy, focusing on optimizing its current operations rather than pursuing expansion. For a financial institution that has been aggressively growing its U.S. presence, the limitation marks a sharp pivot in priorities.

Regulatory scrutiny of TD Bank's compliance practices will intensify in the wake of the guilty plea, with federal agencies such as the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network monitoring the bank closely. As part of its plea agreement, TD Bank has committed to enhancing its anti-money-laundering controls, a process that could require substantial investments in compliance infrastructure and personnel.

The bank has publicly described 2025 as a "transition year," signaling its intent to restructure its balance sheet and improve its risk management framework. The costs associated with these initiatives, coupled with the fine, are likely to dampen earnings in the near term.

Capital One: A bellwether for M&A

As Capital One advances its $35 billion acquisition of Discover Financial Services, the financial regulatory landscape should ease for the two institutions under the incoming Trump administration, although bankers shouldn't expect an easy rubber stamp.

The deal, announced in February 2024, aims to create a formidable entity in the consumer lending sector, combining credit card portfolios, banking services and digital platforms.

The reelection of President Donald Trump is expected to usher in a more permissive regulatory environment for bank mergers and acquisitions. This shift contrasts with the stringent regulatory scrutiny observed during the Biden administration, which saw a slowdown in bank M&A activity. Under Biden, the number of mergers completed decreased, and the time taken to finalize deals increased.

Despite the favorable outlook, the Capital One-Discover merger has encountered scrutiny. In October 2024, New York Attorney General Letitia James initiated an investigation into potential antitrust violations associated with the deal. And in September 2024, federal regulators, including the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, introduced new guidelines calling for stricter reviews of bank mergers, signaling increased scrutiny of such deals.

Consumer advocacy groups have also expressed concerns, arguing that the merger could reduce competition and negatively impact consumers. These apprehensions underscore the complexities inherent in large financial sector consolidations, even amid a more accommodating regulatory environment.

Wells Fargo: Wrestling with legacy scandals

Wells Fargo's regulatory challenges are deeply rooted in its history of governance failures and consumer protection violations.

While a Trump administration may aim to ease compliance burdens, Wells Fargo's repeated lapses mean it is unlikely to escape heightened scrutiny. The bank remains under multiple consent orders, with regulators demanding evidence of substantive reforms.

It continues to operate under a $1.9 trillion asset cap the Federal Reserve imposed in 2018, although it took an important step to get out of the regulatory doghouse when the Office of the Comptroller of the Currency terminated a 2016 consent order over its sales practices.

But Wells Fargo has continued to find itself in hot water. This fall, the OCC flagged "deficiencies" related to the bank's anti-money-laundering compliance programs. The OCC's order didn't include any monetary penalties, but it did require Wells to take "comprehensive correction actions" to make sure its anti-money-laundering practices are up to par.

Wells Fargo also faces the same compliance issues that other banks are grappling with as well. For instance, the institution was most recently part of the lawsuit filed by the CFPB over Zelle fraud.

USAA: Working to restore trust and compliance

USAA's troubles stem from what regulators have termed a "fundamental breakdown" in compliance and risk management.

In late 2024, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau imposed hefty penalties on USAA, citing deficiencies in anti-money-laundering protocols, consumer protection practices and IT infrastructure. These penalties followed a string of consent orders dating back several years.

USAA's challenges are particularly significant given its unique position as a financial institution catering primarily to military families. For decades, the bank's reputation for reliability and customer service shielded it from the intense scrutiny faced by larger, more commercially oriented banks. However, as its customer base expanded and its digital operations grew more complex, cracks in its operational framework became apparent.

The bank's internal struggles were exacerbated by leadership turnover and an overreliance on outdated systems. Employees flagged compliance concerns as early as 2021, but the bank reportedly failed to act swiftly, leading to compounding regulatory violations.

The penalties have sparked calls for reform within the institution. CEO Wayne Peacock has pledged to overhaul compliance programs and invest significantly in technology upgrades. In a January 2025 statement, he emphasized USAA's commitment to "restoring trust" and ensuring its operations meet regulatory expectations.