Community Bank Exams Are About To Change

Community banks got big regulatory victories under the first Trump administration, but reining in the juggernaut of behind-the-scenes bank supervision was harder.

That’s quickly shifting as Trump’s new pool of bank regulators settles in. A blitz of announcements has industry lawyers optimistic, hoping that the excessive paperwork bankers have long complained about gets lightened.

“It is a significant management burden. It’s a significant financial burden,” says Jacque Kruppa, a partner at the law firm Bradley Arant Boult & Cummings. “It’s a common reason we hear for banks that want to sell. They’re just tired of the regulatory burden.”

It may take time for those actions to trickle down to bank supervisors, Kruppa says. But banks should monitor the changes from Washington, she says. There’s plenty to keep track of. Regulators are proposing to use “matters requiring attention,” which can be a precursor to tougher actions, only in cases where there are material financial risks. Concerns such as succession planning or flawed internal procedures are less likely to meet that threshold, said the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp.

Effective Jan. 1, 2026, the OCC is scrapping exam requirements for community banks that aren’t found in law or regulation. Agencies are promising a renewed focus on “tailoring,” so that smaller banks aren’t subject to the same standards as bigger ones.

The FDIC, which oversees most community banks, is also releasing banks from the regulatory penalty box sooner. Banks can now be freed from FDIC cease-and-desist orders if they’re in “substantial compliance” with regulators’ required fixes, rather than full compliance.

Critics argue the series of changes will hamstring supervisors, making it harder for them to flag risks at banks before they become more severe. Bankers may be happy they’ll get dinged less, but examiners’ “whole role is to help identify these flaws” so a bank can improve, says Todd Phillips, a former FDIC lawyer who now teaches at Georgia State University.

“My advice to bank directors is: Don’t look at your examiners as the enemy or the opposition,” Phillips says. “These are people who can serve as another set of eyes looking at the bank to help you make sure that you are in as strong a position as possible.”

One recent paper found supervisors “anticipate most bank failures with a high degree of accuracy,” forcing earlier corrective actions and thus lowering the blow to the financial system.

Tone at the Top
More supervisory announcements for community banks are in the works. The OCC’s steps were a “downpayment on more things to come,” Comptroller of the Currency Jonathan Gould said at a recent conference. Regulators aren’t looking to “weaken our supervision,” Gould said, but instead are “focusing on what matters.” 

“You, just like we, have limited time and attention,” Gould said. “I’d much rather have boards of directors and senior management in banks focused on the medium and long-term competitive threats, their strategies, serving their consumers … than dealing with the 16th MRA around a change management issue.”

It’s a similar message from top leaders at the FDIC and Federal Reserve, the two other major federal bank regulators. And it is one reflected in a recent speech from Treasury Secretary Scott Bessent, who said post-2008 reforms “gradually suffocated” community banks and left a “trail of destruction in its wake.” “No longer will regulation serve to entrench big banks and empower Washington bureaucrats to the detriment of community banks and the clients they serve,” Bessent said. 

The industry has clearly noticed, with one survey from the Conference of State Bank Supervisors finding that regulation fell from bankers’ top perceived external risk last year to sixth in 2025.

The tone at the top matters, says Brian Graham, a partner at the consultancy Klaros Group, and could translate into smoother relationships between banks and supervisors. That is “more likely to have a bigger material impact on the day-to-day lives of community bankers” than changes to supervisory manuals, he says. 

Lightening the Load
That doesn’t make the supervisory changes any less meaningful, Graham and other observers say. The OCC, for example, is telling its supervisors to adjust their exams for community banks depending on their size and complexity. It is also defining community banks as those with under $30 billion in assets, up from the traditional $10 billion threshold.

Automatic requirements that the OCC set over the years — and aren’t required by law or regulation — will be scrapped for community banks. That includes a risk assessment for fair lending practices, as well as periodic reviews of compliance with the national flood insurance program.

Examiners can dial up requirements if they deem it necessary, but they will not do so “for the sake of completing procedures required by OCC policy,” the agency says. The OCC is also weighing requesting less data from community banks.

Those are welcome changes for bankers, who frequently say that the “pre-exam document request process is unnecessarily burdensome,” says Patrick Hanchey, a lawyer at Alston & Bird.

“Bank personnel are spending a lot of time providing stuff that’s really not related to whether the bank is operating in a safe and sound manner — it’s just really a lot of paper pushing,” Hanchey says. “I’ve heard that a lot through the years.”

The OCC is also loosening supervision around risks from models that community banks use — whether for underwriting loans on their own or made through fintechs. It will limit a “massive ongoing expense” for banks that spend on personnel to validate what can ultimately be simple models, says Matt Bisanz, a lawyer at Mayer Brown.

Rather than requiring full annual validations, the OCC says examiners should decide whether an individual bank’s usage of models warrants more scrutiny.

Focus on Material Risks
Lawyers are also optimistic that the agencies will no longer escalate minor process issues into punishing banks for unsafe practices. 

The focus on material financial risks to banks is at the heart of regulators’ directives to supervisors. But the OCC and FDIC are also proposing to formalize that approach in a new rule defining “unsafe or unsound practices.” The proposal is open for public comment.

Bisanz, of Mayer Brown, recalls clients who’ve gotten dinged for problems with Reg W, which cover bank transactions with affiliates, even if they were a tiny portion of banks’ balance sheets.  

“Was the examiner correct that they identified transactions that appear to violate Reg W? Sure,” he says. “Is there any way that that transaction could have led to the failure of the bank? No, full stop, no.”

Early Release
For banks who do get in trouble, the FDIC’s new standard releasing them from consent orders once they’re in “substantial compliance” could help them expand sooner. 

It takes a “long time to get back in good graces” with regulators, says Chip MacDonald, a bank lawyer at MacDonald Partners. And in the meantime, getting regulatory approval for new branches, new products or mergers gets tougher.

The standard has recently been “almost perfection,” says Kruppa, the Bradley lawyer. And if banks have effectively met the mark, they can get back to their “fundamental blocking and tackling” quicker, she says.

“That’s positive for the banks,” she says. “It’s positive for the communities they serve, and it’s positive for our economy as a whole.”