M&A chaos and fintech shakeup, financial watchdogs embrace the challenge

January 11, 2024
1 min read

Financial regulators are set to face a busy year in 2024 as they contend with mergers and acquisitions (M&A) and the evolving fintech sector, according to David Portilla and Gabe Rosenberg of Davis Polk & Wardwell. The authors highlight several key issues worth watching, including the impact of election years on financial regulatory policy, challenges to regulatory authority, bank mergers, bank funding, the role of nonbanks, artificial intelligence (AI), and the regulation of cryptocurrencies and blockchain.

Election-Year Impact

  • Financial regulatory rulemaking tends to accelerate in election years.
  • There is a large backlog of proposed rules, particularly at the Securities and Exchange Commission, which is expected to continue into 2024.

Challenges to Authority

  • The financial services industry has filed numerous lawsuits against regulators, which will be heard in 2024 and could reshape the regulatory process.
  • Five cases with potential ramifications for financial regulators will be heard by the Supreme Court in 2024.

Oversight of Agency Heads

  • Congress is likely to continue conducting oversight of agency heads, potentially leading to policy or personnel changes.

Bank Mergers

  • Bank mergers are encouraged by bank funding conditions, the interest rate environment, and more stringent regulations.
  • Banking regulators and the Department of Justice are reviewing the standards used to approve bank mergers.

Bank Funding

  • The way banks fund themselves is likely to change due to the Federal Reserve’s interest rate policies and focus on uninsured deposits.
  • The SEC is requiring clearing of Treasury repos, a key funding mechanism, and the Federal Reserve’s emergency funding to banks through the Bank Term Funding Program expires in 2024.

Role of Nonbanks

  • The nonbank sector has increasingly played a role in areas where banks have scaled back due to regulations.
  • Nonbank private credit providers are becoming more important in commercial lending markets, and banks and private credit funds may develop mutually beneficial relationships.

Artificial Intelligence

  • The regulatory community may take action on artificial intelligence (AI) in 2024.
  • Regulators will need to balance promoting technological innovation with protecting against unanticipated effects of AI.

Crypto and Blockchain

  • The legislative and regulatory community will need to address the growing markets for cryptocurrencies.
  • Institutionalization of blockchain technology is increasing in areas such as tokenized payments and traditional assets like stocks and bonds.

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