Community Banking Deregulation: Preparing for Policy Changes in 2026

The regulatory outlook in 2026 for community banks appears to present opportunities as well as challenges. ICBA’s experts delve into the details on what bankers should keep their eyes on this year.

Deregulation

On the side of opportunities, the administration’s leaders at the Treasury Department, Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) have all expressed their support for and interest in advancing measures to relieve regulatory burden on community banks, says Charles Yi, senior advisor to ICBA president and CEO Rebeca Romero Rainey and interim chief of regulatory affairs.

“In 2026, we can expect the banking agencies to continue to look for ways to provide regulatory relief to community banks,” he says. “For example, by raising certain regulatory thresholds, exploring streamlining and rationalizing Bank Secrecy Act/anti-money laundering [BSA/AML] processes, further tailoring examination and capital requirements, and advancing other initiatives that have been announced.”

In this deregulatory environment, the banking agencies are taking a “back-to-basics approach” to community bank regulation, says Jenna Burke, ICBA’s executive vice president and general counsel for government relations and public policy.

“This includes continued emphasis on tailoring and risk-based supervision, eliminating duplicative requirements and non-statutory mandates, and promulgating rules to clarify existing requirements rather than adding new requirements,” Burke says.

As such, the agencies will likely look to the recommendations that ICBA made to the Office of Management and Budget (OMB) in 2025 for deregulation and move forward with advancing some of these efforts in 2026, she says.

Some of the high-impact items that ICBA recommended to the OMB include small business lending under the Equal Credit Opportunity Act (Section 1071 of the Dodd-Frank Act), amendments to Regulation II debit card interchange proposal, BSA reporting thresholds and the BSA customer due diligence rule regarding beneficial ownership information.

“Allowing the payment of interest or yield on stablecoins is predicted to precipitate a substantial flight of deposits out of community banks that will curtail access to capital for small businesses and local, often rural, communities that community banks serve.”

—Charles Yi, ICBA

Section 1071

ICBA continues to call on the Consumer Financial Protection Bureau (CFPB) to exempt community banks from its updated proposed rule implementing small-business reporting requirements under Section 1071 of the Dodd-Frank Act.

The CFPB’s revised 1071 proposal, issued in November, would exempt financial institutions that originate fewer than 1,000 covered small-business loans per year, exempt more small-business loans by defining small businesses as having gross annual revenues of $1 million or less, and dramatically reduce the data points that covered banks would be required to collect.

Nevertheless, ICBA is calling for the CFPB to fully exempt all community banks under $10 billion in assets, particularly given the proposal’s exemption for Farm Credit System lenders. 

“FCS lenders should not have competitive and regulatory advantages over rural community banks,” ICBA president and CEO Rebeca Romero Rainey said in a message to community bankers after the proposal to exempt FCS lenders was released.

Amendments to Reg II debit card interchange proposal

ICBA has repeatedly called on the Federal Reserve to withdraw its November 2023 debit interchange proposal, including in a November meeting with Fed governor Stephen Miran. The proposal would lower the maximum interchange fee that covered debit card issuers may receive for debit card transactions under Reg II.

In a July letter to Michelle Bowman, the Fed vice chair for supervision, ICBA noted the proposal is based on 2021 data and would leave a third of covered issuers not covering their cost of offering debit card services. “Withdrawing the proposed rule would limit the adverse effects Regulation II imposes on the community banking sector,” ICBA said.

BSA reporting thresholds

ICBA has repeatedly advocated for reforms to make BSA/AML reporting requirements less burdensome and more effective, including by raising suspicious activity reporting and currency transaction reporting thresholds.

“The current thresholds are antiquated, in need of modernization and impose a disproportionate burden on community banks without providing commensurate benefits,” ICBA wrote in its letter to the OMB. “Additionally, by diverting resources from high-risk transactions to rote compliance, the thresholds fail to support risk-based banking and modern technology.”

ICBA is urging the Financial Crimes Enforcement Network (FinCEN) to issue proposed rules to increase the suspicious activity report (SAR) reporting threshold from $5,000 to $10,000 and the currency transaction report (CTR) threshold from $10,000 to $30,000, with future increases linked to inflation.

“Community banks must navigate evolving expectations around privacy-preserving techniques, explainability and bias testing, especially in credit decisioning.”

—Lilly Thomas, ICBA

BSA customer due diligence rule on BOI

ICBA is also urging FinCEN to rescind its customer due diligence rule, which mandates that banks collect  beneficial ownership information (BOI) of legal entities.

“BOI should be collected and verified at the time a legal entity is formed,” ICBA told the OMB. “Placing the responsibility on financial institutions is misguided, ineffective, duplicative and places undue burden on community banks and businesses.”

How regulators will likely respond

In the consumer protection space, ICBA expects to see regulators in 2026 address various regulations through a host of rulemakings, says Lilly Thomas, ICBA executive vice president for regulatory relations and strategy.

“The CFPB released its Spring Semiannual Regulatory Agenda, which showed 24 separate rulemaking items, which is ambitious given its limited staff,” Thomas says. “However, this shows the bureau’s continued commitment to reversing actions taken under the prior administration.”

ICBA also expects to see a focus on AML and fighting the financing of terrorism. The Treasury Department has signaled its interest in addressing burdens associated with reporting requirements and moving toward a more risk-based approach, according to Thomas.

“We also expect to see focus on new technologies, as AI in financial services is accelerating,” she says. “In this area, community banks must navigate evolving expectations around privacy-preserving techniques, explainability and bias testing, especially in credit decisioning.”

Banking regulators are also reassessing capital requirements for banks of all sizes, from the enhanced supplementary leverage ratio and revisiting the Basel III endgame proposal to the community bank leverage ratio, Thomas says. Reforms aim to modernize frameworks while maintaining financial stability.

Stablecoin

Congress and regulators are working to regulate digital assets, and ICBA expects to see a flurry of rulemaking in 2026, Thomas says. Legislation regulating stablecoin issuance was enacted, and a framework for digital assets market structure is expected to advance, with supervisory expectations evolving around custody, risk management and compliance.

It will likely remain the Trump administration’s priority to advance the interest of the cryptocurrency industry, Yi says. While the debate over the market structure for stablecoins continues in Congress, on the regulatory front, the Treasury Department and the banking agencies will be implementing the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act that passed in 2025.

Authored by Senator Bill Hagerty (R-Tenn.), the GENIUS Act establishes a regulatory framework for payment stablecoins—digital assets that an issuer must redeem for a fixed value. 

Under the new law, only permitted issuers may issue a payment stablecoin for use by U.S. persons, subject to certain exceptions and safe harbors.

The law states that permitted issuers must be a subsidiary of an insured depository institution, a federal-qualified nonbank payment stablecoin issuer or a state-qualified payment stablecoin issuer. Permitted issuers must be regulated by the appropriate federal or state regulator, but state regulation is limited to those with a stablecoin issuance of $10 billion or less.

Permitted issuers must maintain reserves backing the stablecoin on a one-to-one basis using U.S. currency or other similarly liquid assets, as specified, the law states. Permitted issuers must also publicly disclose their redemption policy and publish monthly the details of their reserves.

The biggest issue for community banks in the stablecoin debate has been, and will continue to be, allowing the payment of interest or yield to holders of stablecoins, Yi says. ICBA strongly recommends the prohibition of such payments.

“Allowing the payment of interest or yield on stablecoins is predicted to precipitate a substantial flight of deposits out of community banks that will curtail access to capital for small businesses and local, often rural, communities that community banks serve,” he says.

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