A top advocate for state banking regulators said consolidating bank regulatory agencies would eliminate the diverse perspectives that currently shape financial oversight, weaken state-chartered banks and ultimately harm community banking.
In keynote remarks at the Federal Reserve Bank of Atlanta's Banking Outlook Conference on Thursday, Brandon Milhorn, president and CEO of the Conference of State Bank Supervisors, warned that consolidating the agencies would threaten the dual banking system and America's long-standing commitment to decentralized financial oversight.
While acknowledging the system's inefficiencies, Milhorn said its fragmented structure fosters rigorous debate and careful policymaking — an essential safeguard for community banks, which play a crucial role in supporting local businesses and underserved markets.
"The different perspectives of state regulators compared to our federal counterparts … and disagreements among the federal regulators themselves … help produce robust debate and more thoughtful federal regulations and standards," he said. "A single, all-powerful federal regulator would destroy the benefits of this democratic competition of ideas. Banks that chose a state charter would almost certainly be disadvantaged in this one-regulator model, and the diversity of our financial system and the health of community banks would be collateral damage."
The debate over consolidating U.S. banking regulators reemerged as Donald Trump prepared to take office for a second time, driven in part by his broader push to streamline government agencies and reduce federal bureaucracy.
Early reports indicated that Trump's transition team
The proposal is the latest effort to do so, rooted in long-standing arguments that the fragmented regulatory structure creates inefficiencies, regulatory arbitrage and unnecessary burdens on financial institutions. Proponents point to European models, where financial oversight is often more centralized, as a blueprint for reform. However, Trump's plan faced immediate skepticism from banking industry leaders, lawmakers and regulatory experts, who said the existing system, while imperfect, provided necessary checks and balances, especially for community banks and smaller financial institutions. Any formal consolidation would require an act of Congress.
Former FDIC Chair Sheila Bair, among others, warned that dismantling the agency's independence could undermine confidence in the deposit insurance system, which she said has been a pillar of financial stability.
In his remarks, Milhorn underscored the unique structure of the U.S. banking system, in which banks can choose between state and federal supervision. The state-chartered banks are regulated by the FDIC, while the federal charters are overseen by the OCC.
The fact that 79% of banks have opted for state charters, he said, provides evidence of the advantages of state-level oversight, including a more flexible, localized understanding of economic conditions and a regulatory approach that, while maintaining safety and soundness, can promote growth and new ideas.
He also pointed to mounting pressures on community banks, noting the number of these institutions has declined by over a third over the past decade due to mergers, acquisitions and closures.
Milhorn cautioned against the potential politicizing effect of a centralized regulator, which could lead to volatile policy shifts and increased compliance burdens.
"Wild swings in supervisory expectations and regulatory requirements undermine stability and certainty for financial institutions and pose a special hardship for community banks," he said. "Banks faced with these extreme changes incur significant legal, operational and technological costs to meet new, ever-changing compliance demands."
To preserve the dual banking system and strengthen community banking, Milhorn instead called for regulatory reforms tailored to the size and complexity of institutions. He advocated for a shift away from overly prescriptive, checklist-based supervision toward a more risk-focused approach, particularly in areas such as anti-money-laundering compliance.
He also urged federal policymakers to reconsider arbitrary regulatory thresholds that hinder community bank growth and to ensure that new rules do not impose unnecessary costs on smaller institutions. By reinforcing the dual banking system's role in balancing national stability with local economic responsiveness, Milhorn positioned state regulators as crucial advocates for both financial resilience and consumer choice in an evolving banking landscape.
"The U.S. regulatory framework — with the dual banking system at its core — has fostered the most diverse, innovative and dynamic financial services sector in the world. It is the cornerstone of America's $27 trillion economy," Milhorn said. "This system relies on cooperative federalism. It requires coordination between state and federal bank regulators."
