Insight: How the Trump administration is testing Fed independence on bank rules

• Fed officials have wrestled with a Trump executive order requiring independent regulators to submit rules for White House Budget Office review, breaking decades of precedent protecting Fed rulemaking from political interference
• Treasury Secretary Scott Bessent has said Treasury will 'set policy direction and push bank regulators along,' creating tensions as Treasury increasingly tries to steer the Fed's regulatory agenda
• Fed Governor Michelle Bowman is leading sweeping personnel changes including hiring three banking industry executives and overseeing headcount cuts that have pushed out long-tenured career staff who historically served as a bulwark against outside influence

Summary: Trump Administration Challenges Federal Reserve Independence on Bank Regulation

The Trump administration is quietly attempting to increase its influence over the Federal Reserve's bank oversight and rulemaking functions, aiming to ease post-2008 crisis regulations it claims are hindering economic growth.

Key Developments:

The administration issued a 2025 executive order requiring the Fed to submit new rules for White House Budget Office review, breaking decades of precedent protecting Fed independence. Fed officials have debated compliance but haven't submitted any rules to date. The central bank has aligned with some priorities by scrapping climate risk initiatives and abandoning reputational risk policing.

Treasury Secretary Scott Bessent is taking an expanded role in steering bank regulation, stating Treasury will "set policy direction and push the bank regulators along." This has created tensions, with Fed officials sometimes pushing back on Treasury's timeline demands, including refusing to rush a guidance proposal on bank practices before Bessent's October speech.

Personnel Changes:

Fed Governor Michelle Bowman, Trump's regulatory chief, is leading sweeping reforms. She hired three banking industry executives, including Randall Guynn from Davis Polk, who became director of supervision and regulation in March—the first non-career Fed staffer in that role since at least 1977. Internal headcount cuts have led to exits of long-tenured staff who previously resisted outside influence.

At Stake:

Major changes to bank capital requirements and daily supervision practices. Former officials warn these efforts could make Fed rulemaking vulnerable to political pressure and Wall Street influence, potentially eroding financial system safeguards.

Kevin Warsh, expected to replace Fed Chair Jerome Powell in May, has advocated that regulatory policy should not be independent, suggesting further erosion of Fed autonomy ahead.