Since taking office on January 20, 2025, President Donald J.
Trump has signed a staggering number of Executive
Orders1 and Memoranda,2 and more continue to
be issued each day. These executive actions signal President
Trump's aggressive agenda to significantly redefine federal
policy in a range of areas. This Advisory addresses the executive
actions issued so far that are most likely to affect banking
organizations, including those concerning digital assets, a
regulatory freeze, and diversity, equity, and inclusion (DEI)
initiatives.
The executive actions issued to date do not cover a number of the
specific regulatory issue areas that banking organizations have
been expecting from the Trump administration, such as an increased
appetite toward mergers and acquisitions or bank charters.
Nonetheless, there is much that banking organizations need to pay
attention to already, from strategic, compliance, operational, or
personnel perspectives.
The following are some of the key executive actions issued in the
first 10 days of the administration that may affect banking
organizations, and our preliminary view of their implications. Our
Financial Services team is prepared to advise you on these and any
executive actions to come.
Rescinding Restrictions on and Signaling Openness to Digital Assets and Cryptocurrency
Summary of Strengthening American Leadership in Digital Financial Technology (Executive Order, January 23, 2025). This Executive Order states that the policy of the administration will be to support the responsible growth of digital assets, blockchain technology, and related technologies across the U.S. economy. Among other steps, it establishes a new President's Working Group on Digital Assets, chaired by a new Special Advisor for AI and Crypto and including representation across government (although notably not including the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (FDIC), or the Federal Reserve (together, the Banking Agencies)), tasked with taking steps to promote regulatory clarity for this asset class. Within 30 days of the date of the Executive Order, relevant agencies are tasked with identifying all regulations, guidance documents, orders, or other items that affect the digital asset sector and then, within 60 days, relevant agencies must submit recommendations regarding whether these items should be rescinded or modified. Within 180 days of the Executive Order, the working group must submit regulatory and legislative proposals advancing policies established in the Executive Order, including a new federal regulatory framework governing the issuance and operation of digital assets. It further directs the agencies to evaluate the creation of a digital asset stockpile and includes a sweeping prohibition on any U.S. agency engaging in any action to establish, issue, or promote central bank digital currencies (also known as CBDCs). At the same time, it states a policy of promoting the development of dollar-denominated stablecoins worldwide and requires that the working group include stablecoins within the regulatory framework that it is to develop. In its purpose statement, it includes language supporting "fair and open access to banking services for all law-abiding" citizens and private-sector entities but does not direct specific action to this objective.
Implications for Banking Organizations
This Executive Order could have far-reaching implications for banking organizations, since it portends the rapid development of new regulatory standards for digital assets, including stablecoins, and presumably the much more widespread development of digital asset markets. The Biden administration had a notably skeptical attitude toward this asset class, particularly after the failure of FTX, characterized by significant enforcement activity and significant formal and de facto barriers toward banking organizations engaging in cryptocurrency-related activities. Banking organizations will need to be ready for the opportunities and risks that digital assets present, as federal banking regulators are likely to take a more permissive attitude toward the involvement of banking organizations in cryptocurrency-related activities. A good place to start is an evaluation of the technology and compliance costs related to stablecoin activities. Stablecoin legislation is likely to follow the recommendations of the working group, and banking organizations may consider whether they wish to begin engaging in stablecoin-related activities. Moreover, although there are challenges to implementation, the Banking Agencies may expect banking organizations to show that they are not engaged in derisking customers associated with digital assets (so-called "debanking"), in line with the Executive Order, and should review their activities for practices that may raise issues in this respect.3
Implementation of a Regulatory Freeze
Summary of Regulatory Freeze Pending Review (Memorandum, January 20, 2025). The new administration has ordered agencies (1) to refrain from proposing or issuing any rules until a "department or agency head appointed or designated by the President after noon on January 20, 2025," or their delegee, has reviewed and approved the rule (subject to limited exceptions), (2) to withdraw any rules that have been sent to the Federal Register but not yet published so that they can be reviewed and approved by the appropriate Trump-appointed official, and (3) to consider postponing for 60 days the effective date of any rules that have been published in the Federal Register or that otherwise have been issued but have not yet taken effect.
Implications for Banking Organizations
The Banking Agencies will not be issuing any rules, or guidance or policy statements that have the effect of a rule until they have new leadership. As of this writing, only the FDIC, among the Banking Agencies and CFPB, has a temporary or acting head designated by the president after inauguration day of this year. Additionally, all proposed banking regulations from the Biden administration that have not yet gone into effect are now in limbo and there is the possibility that rules that have been finalized but have not yet taken effect will be paused. Some recent rules are likely to be affected by the regulatory freeze, including the CFPB's final rule on overdraft lending for very large financial institutions (which is slated to go into effect on October 1, 2025), Financial Crimes Enforcement Network's final rule implementing beneficial ownership information reporting requirements (which was slated to go into effect on January 1, 2025, but has been postponed due to ongoing litigation), the final rule amending regulations implementing the Community Reinvestment Act (provisions of which were scheduled to come into effect in stages over the next several years), proposed revisions to U.S. capital rules (also known as Basel III "Endgame"), and the FDIC's proposed rule revising brokered deposit regulations.
Rescission of DEI Programs
Summary of Ending Radical and Wasteful Government DEI
Programs and Preferencing (Executive Order, January 20,
2025). The new administration has deemed government
programs and initiatives related to DEI to be wasteful and
discriminatory. There is now an increased focus on eliminating
these programs, including equity action plans, DEI performance
reviews, and environmental justice initiatives, within the federal
government. The Office of Management and Budget (OMB), the Office
of Personnel Management (OPM), and other federal entities are
directed to assess and remove DEI positions, grants, and
policies.
Summary of Ending Illegal Discrimination and Restoring
Merit-Based Opportunity (Executive Order, January 21,
2025). The new administration aims to end what it has
described as discriminatory and "illegal" DEI practices
in federal agencies and the private sector, including financial
institutions. The Executive Order revoked several prior Executive
Orders and policies promoting DEI while also mandating compliance
with federal civil rights laws. Federal agencies are directed to
eliminate DEI references from federal processes and promote
merit-based practices in the private sector. The head of "each
agency" is directed to include in every contract or grant
award a term in which the contractual counterparty or grant
recipient certifies that it does not operate any programs promoting
DEI that violate any applicable federal anti-discrimination laws.
In addition, the heads of all agencies are directed to take
"all appropriate action ... to advance in the private sector
the policy of individual initiative, excellence, and hard
work." The Attorney General, in consultation with "the
heads of relevant agencies," is directed to prepare a report
containing recommendations "to encourage the private sector to
end illegal discrimination and preferences, including DEI."
The Attorney General's report shall propose a strategic
enforcement plan that includes "each agency" identifying
up to nine potential private sector entities for civil compliance
investigations.
Implications for Banking Organizations
Banking organizations that implemented DEI programs as part of their hiring, retention, and employee relations practices may be subject to increased scrutiny and potential enforcement by federal agencies seeking to crack down on what they consider to be discriminatory and illegal DEI practices. Banking organizations with these programs often advertise them on their websites and disclose them in their annual reports on Form 10-K and Corporate and Social Responsibility Reports, and similar materials. These Executive Orders could also be applied beyond employment practices to broader banking activities that may be directed towards low- and moderate-income communities and minority communities. Legal exposure could come from regulatory action or private litigation. Banking organizations should review their policies and practices, as well as their public disclosures, to understand their potential legal exposure in light of these executive actions. Although there is significant doubt about this interpretation, the Office of Federal Contract Compliance Programs has taken the view in the context of past Executive Actions that a bank may be classified as a government contractor because it obtains federal deposit insurance, acts as an issuing and paying agent for U.S. savings bonds and notes, or is a federal fund depository.
Federal Workforce Measures
Summary of Hiring Freeze (Memorandum, January 20,
2025). A hiring freeze is now in effect throughout the
federal government, including all executive departments and
agencies. While it is not clear if this applies to all banking
agencies (e.g., Federal Reserve Bank employees), it is likely that
all will comply. Vacant civilian positions cannot be filled, and no
new positions can be created unless exempted. The Memorandum
directs OMB to submit a plan to reduce the federal workforce in 90
days.
Summary of Restoring Accountability To Policy-Influencing
Positions Within the Federal Workforce (Executive Order,
January 20, 2025). This Executive Order reinstates a prior
Schedule F policy which the Trump administration had implemented in
2020, which would make it easier to dismiss certain federal
employees, such as, if they do not "faithfully implement"
administration policies.
Summary of Return To In-Person Work (Memorandum, January
20, 2025). This Memorandum requires heads of federal
agencies to terminate remote work arrangements and requires
employees to work in-person full-time (subject to limited
exemptions).
Summary of Deferred Resignation Email to Federal Employees
(Email From Office of Personnel Management, January 28,
2025). On January 28, 2025, OPM sent a mass email to a
large number of federal employees offering the option of submitting
a "deferred resignation" which would exempt them from
in-office work requirements and entitle them to pay and benefits
"regardless of daily workload" until September 30, 2025,
at which time their resignation would become effective.
Implications for Banking Organizations
These executive actions might augur significant changes in the composition of the workforce at the Banking Agencies, with unpredictable effects. A stoppage in hiring by the Banking Agencies may slow the pace of examinations and enforcement, but also may slow Banking Agency responses to requests and applications by banking organizations. The executive actions may mean that there is more turnover among the career staff at the Banking Agencies than is common during transitions. Banking Agencies may become more responsive to this administration's deregulatory imperatives and industry requests; however, they may lose skilled talent through turnover and attrition.
Designating Certain Entities as Foreign Terrorist Organizations
Summary of Designation of Ansar Allah as a Foreign Terrorist
Organization (Executive Order, January 22, 2025). The
Executive Order sets in motion a process by which Ansar Allah, also
known as the Houthis (a political and military group operating
primarily in Yemen), shall be considered for designation as a
foreign terrorist organization.
Summary of Designating Cartels and Other Organizations as
Foreign Terrorist Organizations and Specially Designated Global
Terrorists (Executive Order, January 20, 2025). The
Executive Order sets in motion a process by which certain
international cartels and other transnational criminal
organizations, particularly organizations active in Mexico and
Central America, will be designated as foreign terrorist
organizations or specially designated global terrorists.
Implications for Banking Organizations
The Executive Orders designating new entities as foreign terrorist organizations will necessitate additional anti-money laundering, anti-terrorist financing, and sanctions obligations for banks and other financial institutions. Banking organizations with lending and other activities involving Mexico and Central America may be particularly affected.
Executive Actions That Affect Possible Borrowers
Summary of Office of Management and Budget, M-25-13
[Pause of Federal Financial Assistance] (January 27,
2025). OMB directed a temporary pause of agency grant,
loan, and other financial assistance programs, which OMB later
clarified would only apply to programs "implicated by"
President Trump's recent Executive Orders. The OMB directive
mandating this pause was then rescinded with unclear effects, and
the pause was separately stayed by a judge in the U.S. District
Court for the District of Columbia.
Summary of Removing Barriers to American Leadership in
Artificial Intelligence (Executive Order, January 23,
2025). This Executive Order declares the Trump
administration's policy of "dominating" global
artificial intelligence (AI) "in order to promote human
flourishing, economic competitiveness, and national security,"
and instructs the heads of certain executive agencies to develop an
action plan to implement this policy, as well as revise or revoke
any actions their agency took under the Biden administration that
are inconsistent with this policy.
Implications for Banking Organizations
Banking organizations may need to consider how their borrowers and other customers may be affected by the executive actions. For some customers, such as entities involved with AI and digital assets, the effect may be favorable. For others, such as entities with federal contracts or those involved in renewable energy, the effects may be less favorable.
Conclusion
The executive actions are being issued at a rapid pace, and we will endeavor to update this Advisory as material developments happen. If you would like more information about how the recent executive actions may impact your business, please contact any of the authors of this Advisory or your usual Arnold & Porter contact. The firm's Financial Services team would be pleased to assist with any questions that you have, and can make available one of our many Arnold & Porter experts in relevant areas such as employment law, sanctions, governance, public policy, or federal contracting as needed.
Footnotes
1. An Executive Order of the president is a declaration by the president which has the force of law. Executive Orders do not require any action by Congress to take effect, and the legislature cannot overturn them.
2. Unlike Executive Orders, Memoranda are not required by law to be published in the Federal Register, but publication is necessary in order to have general applicability and legal effect.
3. The SEC has also signaled increasing openness to digital assets. The SEC launched a “crypto task force” tasked with developing a comprehensive and clear regulatory framework for crypto assets. Securities and Exchange Commission, SEC Crypto 2.0: Acting Chairman Uyeda Announces Formation of New Crypto Task Force (Jan. 21, 2025). The SEC also revoked Biden-era interpretive guidance that required financial institutions reflect digital assets they safeguard for customers as liabilities on their balance sheets. The SEC now allows entities to determine whether or not an obligation to safeguard a crypto asset should be recognized as a liability. Securities and Exchange Commission, Staff Accounting Bulletin No. 122 (Jan. 23, 2025).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
