Given the looming change in presidential administration, Federal Deposit Insurance Corp. Vice Chair Travis Hill – expected to be the next chair of the banking agency – anticipates the regulator will soon take “a more open-minded approach” to innovation and technology and ditch a “misguided focus on climate.”

Hill, speaking Friday at an American Bar Association event, said the regulatory agency “needs a new direction,” which he expects will be ushered in by President-elect Donald Trump’s inauguration Jan. 20. Current FDIC Chair Martin Gruenberg is set to resign Jan. 19, teeing up an acting chair role for Hill, who is one of two Republicans serving on the regulator’s board. 

Offering a look at his policy priorities, Hill advocated for a shift in bank supervision, zeroing in on core financial risks rather than on “process-related issues that have little bearing on a bank’s … financial condition or solvency.” 

The current focus on process serves as “a major distraction” for banks and examiners, Hill said – pointing to failed Silicon Valley Bank as an example – and contributes “to crushing compliance costs, particularly for community and regional banks.”

On innovation, Hill said the FDIC, in recent years, has done “a poor job” striking the balance between permitting banks to evolve and ensuring they manage risks prudently. He pointed to a couple of moves the FDIC may make in the short term, including altering supervisory attitudes toward new technologies, and restoring innovation lab FDiTech, established by previous Chair Jelena McWilliams. “I expect the office will be rejuvenated under new leadership,” he said.

Hill also said the agency should issue more guidance on topics dealing with bank-fintech partnerships, artificial intelligence, digital assets and tokenization. 

He highlighted enforcement actions the FDIC and other banking agencies have issued against banks partnering with fintechs, saying a better approach would have been “to lay out our expectations clearly and transparently on the front end, with an opportunity for the public to comment and provide feedback, rather than go down the line hammering each bank one by one, forcing the industry to reevaluate its compliance approach after every new order.”

Similarly, Hill called for a “reset” of the agency’s views on digital assets and tokenization. The current approach has not only stifled innovation, but “contributed to a public perception that the FDIC is closed for business if institutions are interested in anything related to blockchain or distributed ledger technology.” The FDIC’s “pause” letters that have come to light recently have only reinforced this, he added. 

Better would be for the FDIC to communicate clearly what activities are permissible and how they can be conducted aligned with safety and soundness standards, he said. 

Hill also condemned debanking that’s affected some cryptocurrency-related companies and individuals in recent years. Regulators must work to end that, “and there is no place at the FDIC for anyone who has pushed — explicitly or implicitly — banks to stop serving law-abiding customers,” he said.

Hill also advocated for a reevaluation of the regulatory approach to Bank Secrecy Act implementation. “While we all share the goal of ensuring criminals and terrorists are not using the banking system to fund drug trafficking, terrorism, and other serious crimes, the current BSA regime creates an incentive for banks to close accounts rather than risk massive fines for inadequate BSA compliance,” he said.

Additionally, Hill took aim at the agency’s climate focus, and said he expects the FDIC to withdraw from the Network for Greening the Financial System “imminently” after agency leadership changes. “‘Greening the financial system’ is not within our authorities or mandate,” Hill said. 

On regulatory efforts to draft a Basel III endgame proposal related to bank capital requirements, Hill said he continues to view “a proposal that is roughly capital neutral” as a “prudent starting point.” 

He also noted the Federal Reserve’s recent announcement that it will soon propose changes to the stress-testing process with an eye toward increasing transparency and reducing volatility. If those changes don’t materially affect the stress capital buffer, “I expect the next iteration of the Basel endgame proposal will need more comprehensive changes than the 2024 draft,” Hill said. 

Merger and de novo policies, liquidity, the FDIC’s workplace culture, resolution readiness and planning, agency disclosures and deposit insurance are other topics Hill anticipates the agency to give attention to in coming months and years.   

Days before Hill’s speech, Fed Gov. Michelle Bowman – seen as the central bank’s likely next vice chair of supervision, replacing Michael Barr – spoke to bankers, offering a similar look at her views and priorities. The industry largely expects the Trump administration to bring about a period of lighter regulation and more permissive attitudes toward innovation and mergers and acquisitions.