Bank Flexibility Is Rising. So Is the Need for Discipline

Bank regulation in the United States is not simply getting lighter. It is getting narrower. In Douglas Elliott’s view, that shift is giving banks more room to exercise judgment—but also putting more weight on how well they use it. 

Elliott, a partner at Oliver Wyman, describes a regulatory environment that is moving away from prescriptive, checklist-driven oversight and toward a framework more focused on core financial risks, supervisory judgment, and economic growth. For banks, that creates opportunity, but not much room for complacency. 

A few themes stand out: 

The policy push is about freeing balance sheets. Elliott says regulators want banks to hold less capital and liquidity against perceived risks and put more resources to work in lending and investment. “Almost everything they’re doing is intended to help spur faster economic growth by freeing up the financial sector to be more helpful to the economy,” he says. He expects required capital for U.S. global systemically important banks to fall by about 10% once current changes work through the system. 

Supervision is becoming more focused, not less serious. Elliott’s example is Silicon Valley Bank. Supervisors identified dozens of issues there, he notes, yet “only a couple of them directly dealt with the risks that” prompted the institution’s failure. The lesson, in his telling, is that the problem was not too little scrutiny, but too little prioritization. The new approach centers more heavily on “the classic things that blow up banks”: credit risk, interest-rate risk, and maturity mismatch. 

Banks may have more room to use judgment. Elliott says the shift is especially visible in credit oversight, where blunt thresholds and standardized mandates are giving way to a greater willingness to let banks “use their business judgment more” in underwriting and portfolio management. That does not mean a green light for risk-taking, he says. It means a greater expectation that institutions can distinguish sound risk from unsound risk on their own. 

Some areas are receding, but others are not. Elliott is clear that this is not a retreat from enforcement. Anti-money laundering, fraud, and financial crime remain central concerns. What is receiving less attention are softer, policy-driven areas such as ESG and DEI, which the current regulatory team does not see as central to safety and soundness. 

Freedom is rising, but so is fragmentation. Elliott warns that banks should not assume today’s posture will last. “You’re going to get switches back and forth” as administrations change, he says. He also expects states to become more active in some areas, especially consumer protection, as federal regulators step back—and warns that actions that are not questioned today may not be viewed the same way later. 

The takeaway: Banks may have more freedom in this regulatory phase, but that freedom comes with greater responsibility. The institutions that benefit most are likely to be the ones that use today’s flexibility to strengthen core risk discipline, not relax it.