Fed's Banking System Assessment (Dec 2025): Supervisory Findings Fall as Resilience Confirmed

This analysis is based on the PYMNTS report [1] and Federal Reserve’s 2025 Supervision and Regulation Report [2], published December 1-2, 2025. The event follows the 2023 regional banking crisis (e.g., Silicon Valley Bank, Signature Bank), which led to enhanced regulatory scrutiny focused on capital, liquidity, and risk management.

The Fed’s report reveals a meaningful decline in outstanding supervisory findings during H1 2025, spanning all bank segments (community, regional, large institutions ≥$100B assets) [2]. This improvement addresses longstanding risk categories including IT/operational risk, governance, and liquidity management—key focus areas post-2023 crisis.

Supporting metrics from the Fed’s report include: stable deposit levels (uninsured deposits <2022 levels), reduced non-performing loans across most categories, and record deposit aggregates [2]. These indicators validate the banking system’s resilience, with ongoing recovery momentum from the 2023 crisis.

On December 2, 2025, the financial services sector declined by 0.23% [0], potentially reflecting market pricing of the report’s findings prior to Vice Chair Bowman’s formal testimony.

1. Post-2023 Crisis Regulatory Effectiveness
   : The decline in supervisory findings confirms that enhanced regulatory measures implemented after the 2023 crisis have improved industry risk management practices. This may reduce pressure on regulators to impose additional restrictive rules [2].

2. Segment-Specific Implications
   : While all bank sizes benefit, large institutions may reallocate resources from regulatory remediation to growth initiatives (e.g., fintech partnerships, global expansion), while regional/community banks could see reduced long-term compliance costs, improving profitability [2].

3. Fintech-Banking Collaboration Opportunities
   : The report’s positive assessment indirectly supports fintech-bank collaboration, as reduced regulatory scrutiny frees bank resources for innovation. This is evidenced by Propel Holdings’ recent bank license approval noted in the same PYMNTS article [1].

4. Market Reaction Context
   : The -0.23% sector decline [0] highlights the challenge of real-time market sentiment alignment with regulatory announcements, suggesting that the report’s findings may have been partially priced in prior to its public release.

• Compliance Slippage
  : Banks may relax risk management practices if regulatory scrutiny eases, potentially reversing progress in reducing supervisory findings [2].
• Economic Volatility
  : Sustained economic growth is critical to maintaining strong borrower credit quality and loan demand—any downturn could pressure bank metrics [2].

• IT/Risk Management Technology Growth
  : Remaining supervisory issues (primarily IT/operational risk for smaller banks) create opportunities for tech providers offering security and risk management solutions [2].
• Fintech Expansion
  : Stable regulatory conditions may attract new fintech entrants seeking bank charters, increasing industry competition and innovation [1].
• Stakeholder Confidence
  : The “sound and resilient” assessment enhances consumer/business trust in the banking system, supporting loan and deposit activity [2].

The Fed’s December 2025 report confirms ongoing improvement in the U.S. banking system:

• Broad decline in supervisory findings across all bank segments [2]
• Stable capital, liquidity, and deposit metrics, with reduced non-performing loans [2]
• Post-2023 crisis regulatory measures validated by improved industry practices [2]
• Financial services sector declined -0.23% on December 2, 2025, potentially due to pre-pricing of report findings [0]
• Enhanced fintech-bank collaboration opportunities amid reduced regulatory pressure [1][2]